Australian Dollar: RBA set to hold amid inflation risks - BNY

BNY’s Geoff Yu and David Tam expect the Reserve Bank of Australia (RBA) to keep rates unchanged at 4.35%, noting that markets doubt its willingness to hike despite persistent inflation and robust labor and spending data. They flag housing weakness, lack of terms-of-trade support and poor productivity as structural drags, arguing that a policy hold aligns with a cautious, ‘do no harm’ approach.

Stagflation tests central bank resolve

"The RBA is expected to keep rates on hold at 4.35%, but there remains some degree of uncertainty over the inflation path."

"However, the market is clearly losing confidence on the RBA’s ability to hike as stagflation continues to pressure the economy."

"Sentiment indicators, however, point in a different direction: the housing market, characterized by a domestic bank as “broad-based weakening,” is a drag on demand due to wealth concentration."

"Weak productivity remains a challenge, with even the S&P warning that falling per capita GDP growth is one of the main downside risks to Australia’s credit rating."