LSEG: The RBA Decision - FJElite

The Reserve Bank of Australia is widely expected to raise its official cash rate to an 18- year high of 4.85% on Tuesday, as stubborn inflationary pressures offset rising unemployment. The RBA's preferred measure of core inflation, trimmed mean CPI, rose 1.0% in the September quarter, well above the 0.6% level that RBA Governor Michele Bullock has flagged as desirable. Bullock has since stated that inflation is far too high, and domestic demand pressures remain a contributing factor. Employment will be a clear point of discussion for the monetary policy board, with August unemployment revised up to a five-year high of 4.7%, where it remained in September.

Rising unemployment is likely to constrain the RBA's capacity to hike rates at some point, but Bullock’s earlier comments suggest we are not yet at that juncture. Minutes of the RBA's last meeting showed the board was still concerned about upside inflation risks, and representatives have remained steadfast in their core messaging: they stand ready to tighten monetary policy if needed.

With 30 of 32 economists polled by Reuters predicting a 25-basis-point hike on Tuesday, attention will be trained on the accompanying statement and post-meeting press conference. While AUD/USD has been well supported recently, major resistance looms at 0.7140 and 0.7282 - the RBA would need to significantly amplify its hawkish messaging for those levels to break. A softer tone would be very impactful on the downside, with a fall toward 0.6835 possible.