If you're looking at the economic calendar for tomorrow, you might notice some will show that the "expected" RBA decision is to hike the cash rate by 25 bps to 3.85%. In fact, up until 30 mins ago, that was the case for Reuters' estimate as well before their latest poll result from 3 April came in - which now sees a stronger likelihood that the RBA is on pause.
The poll result shows 21 of 37 economists are now expecting the RBA to keep the cash rate unchanged at 3.60%, while the other 16 economists are expecting a 25 bps rate hike. That does not indicate any overwhelming consensus and the split among major local banks also highlight how tricky of a decision this one is.
ANZ and NAB are both expecting a 25 bps rate hike tomorrow while CBA and Westpac are expecting the RBA to keep the cash rate unchanged instead.
At this point, I would argue that there is no outside risk of any other move besides the RBA pausing or the RBA choosing to hike rates by 25 bps. That's the only two options heading into tomorrow but the risks are fairly balanced on either side it would seem.
The central bank has toned down their hawkish rhetoric in March's statement (in case you need a refresher) and that has led to markets thinking of when the pause in terms of policy tightening will kick in. Is it going to start tomorrow?
Well, recent data certainly does make a case for that but will policymakers be bold enough to really pull the trigger? I mean, it's not to say that they can't continue back with rate hikes again in May but the optics of pausing in itself is a big statement to make on its own.
While market thinking may suggest that the decision is fairly balanced, market pricing isn't in agreement with that. If you look at the OIS market, we are seeing traders price in roughly 87% odds of the RBA keeping the cash rate unchanged tomorrow.
That speaks to the risks of how the aussie might react going into the decision. If we do see a "surprise" 25 bps rate hike, it will likely lead to a decent rally or at least modest upside in the aussie upon the initial reaction.