RBA Decision: Traders Price First Hike by Mid-Year as AUD Braces for Volatility
The Reserve Bank of Australia’s policy call is due today and markets are leaning toward a renewed hiking cycle in 2025. With one increase fully priced by August and odds rising into mid‑year, the Australian dollar and front‑end rates are primed for a sharp reaction to Governor Michele Bullock’s guidance.
Decision Timing and Market Backdrop
The RBA announces at 2:30 p.m. Sydney (03:30 GMT, 10:30 p.m. New York), followed by a press conference an hour later that could steer expectations for the entire year. After an easing phase in the post‑inflation spike period, traders now see the cash-rate floor in place and are positioning for policy tightening to resume.
What Markets Are Pricing Now
Interest‑rate futures and OIS curves monitored by BPayNews show a steady build‑up of hike probabilities across coming meetings:
- February 3: ~16% chance of a hike
- March 17: ~33% chance
- May 5: ~53% chance
- June 16: ~78% chance
- August 11: One 25 bp hike fully priced, small risk of a second
- December 8: One hike fully priced, ~60% chance of a second
Key Points
- Traders see the first hike as most likely by June, with one increase fully priced by August.
- Press conference tone is pivotal for AUD and front‑end rates; guidance could quickly reprice mid‑year odds.
- Hawkish language on inflation persistence could lift the Australian dollar and steepen the front end.
- Liquidity may be thin around the release, elevating FX and rates volatility.
- It’s likely too early for an explicit near‑term signal; the path rather than today’s decision may drive markets.
Why It Matters for FX, Bonds and Stocks
– FX: A hawkish pivot would likely support AUD crosses (AUD/USD, AUD/JPY), particularly if the bank emphasizes sticky services inflation or tight labor conditions. Conversely, a cautious or balanced message could cap AUD rallies as markets pare back mid‑year hike probabilities.
– Bonds: Front‑end yields are most sensitive; any hint that the hiking window opens before mid‑year would push 1–3 year maturities higher and flatten the curve.
– Equities: Banks may outperform on higher rate trajectories, while rate‑sensitive sectors (REITs, discretionary) could lag if terminal expectations drift up.
What to Listen For at the Press Conference
– Inflation character: persistence in services, rents and wage dynamics.
– Growth trade‑offs: signals on household consumption and housing resilience.
– Labor market slack: whether easing job demand is material enough to delay hikes.
– Reaction function: the threshold for moving from data‑dependent watchfulness to pre‑emptive tightening.
– Balance of risks: any explicit nod to upside inflation risks would skew pricing toward earlier action.
Market Setup and Scenarios
– Hawkish tilt: Emphasis on persistent inflation and readiness to act could nudge June odds toward fully priced, lift the AUD, and firm front‑end yields.
– Balanced/neutral: Recognition of mixed data and patience could keep hike odds clustered around mid‑year, leaving AUD range‑bound with event‑driven volatility.
– Dovish surprise: A focus on growth risks or clearer patience on inflation would push hike probabilities out the curve, weighing on AUD and easing front‑end pressure.
FAQ
When is the RBA decision and press conference?
The decision arrives at 2:30 p.m. Sydney (03:30 GMT, 10:30 p.m. New York), with a press conference about an hour later.
What is currently priced for RBA rate hikes?
Markets assign rising odds to hikes from mid‑year: roughly 78% by June, with one increase fully priced by August and around a 60% chance of a second by December.
How could the decision impact the Australian dollar?
A hawkish tone—especially around sticky inflation—would likely support AUD and front‑end yields. A cautious or dovish message could see AUD dip as traders push hike expectations further out.
Which assets are most sensitive to the RBA today?
AUD crosses (notably AUD/USD and AUD/JPY), 1–3 year Australian government bond yields, rate‑sensitive equities, and front‑end OIS/futures curves.
What will traders focus on in Governor Bullock’s remarks?
Signals on inflation persistence, labor market slack, the balance of risks, and the bank’s tolerance for near‑term overshoots versus growth concerns—all key to timing the first hike.
