The Australian sharemarket is expected to open little changed on Wednesday as traders digest the Reserve Bank's move to lift interest rates to a 15-year high and await key inflation figures that could signal whether more hikes are coming.
ASX futures were down 5 points, or 0.1 per cent, at 8747 as of 6.59am AEST, pointing to a muted start. The local bourse edged up 0.3 per cent on Tuesday after the Reserve Bank's rate call, which flagged the possibility of further hikes without signalling they were imminent.
The Australian dollar was trading at US69.83¢ shortly after 7am AEST, having fallen below US70¢ on Tuesday for the first time since early August. RBA governor Michele Bullock expressed "hope" that the tightening delivered so far this year is sufficient to bring inflation back to target.
Money markets scaled back bets on further moves as traders interpreted Bullock's comments as less hawkish than the central bank's statement. While traders still expect the RBA will hike once more this cycle, the cash rate is now seen peaking below 5 per cent.
The Australian Bureau of Statistics will release its monthly inflation data for August at 11.30am AEST, which is likely to be an important input for policymakers, though the RBA's favoured quarterly report will be available before the next meeting in November. Wall Street slipped overnight, adding to the cautious tone.
Analysis
Why This Matters
- The August inflation print will shape whether the RBA's tightening cycle continues or pauses, directly affecting mortgage repayments and consumer confidence.
- The Australian dollar's fall below US70¢ could add to imported inflation, complicating the central bank's task.
- Markets are pricing one more hike but see the cash rate peaking below 5 per cent, suggesting uncertainty about how much further the RBA will go.
Background
The Reserve Bank has been lifting the cash rate to bring inflation back to its target band. Tuesday's move took rates to a 15-year high, extending the most aggressive tightening cycle in decades. The central bank has repeatedly said its decisions depend on incoming data, making inflation reports the key driver of market expectations.
Key Perspectives
RBA: Governor Michele Bullock expressed hope that tightening so far this year will be enough, but the bank's statement left the door open for further hikes if needed.
Money markets: Traders interpreted Bullock's comments as less hawkish than the statement, scaling back bets on additional moves while still pricing in one more rate rise this cycle.
Economists and analysts: The monthly inflation indicator is a critical data point, but the RBA's preferred quarterly measure, due before the November meeting, will carry more weight in the final decision.
What to Watch
- August monthly inflation data due at 11.30am AEST Wednesday.
- Whether the cash rate peaks below 5 per cent, as markets currently expect.
- The November RBA meeting and the quarterly inflation report due just before it.