Aussie cash rate futures are showing that a 15 bps rate hike is all but priced in now for next week and with the inflation report today hinting that the central bank may be 'behind the curve', they may feel compelled to act - especially after having made subtle changes earlier this month to tilt more hawkishly. A reminder of that here.
The question now then isn't so much so if the RBA moves but is likely if they do, by how much will they be hiking the cash rate? 15 bps to 0.25% or 40 bps to 0.50%?
The former will just reaffirm what the market has already priced in now but it also a signal that the RBA looks to be moving quicker than anticipated before today's inflation report. That said, stronger rate hikes have already been priced in as well so it is tough to find that much upside for the aussie in this respect.
As such, I see two scenarios in which we will get a significant reaction. The first being a 40 bps rate hike will help prop up the aussie but the momentum might be tempered by more negative risk sentiment, should that be the case. The second being a scenario where the RBA pushes the decision to June and that will likely weigh on the aussie modestly after today's reaction.