In terms of market pricing, we're not seeing strong conviction expecting the RBA to raise the cash rate next week. Based on cash rate futures, there is a roughly 63% probability that there will be no change with the other 37% expecting a 25 bps rate hike. If you want to get a sense of what economists are expecting, it's pretty much a dead even call.
Taking a look at the curve in the cash rate futures pricing, you can see the hawkish developments in the past four weeks. The redline represents the curve right after the last RBA decision on 2 June with the green line representing the curve today.
So, while markets aren't really pricing in a move for July, they are definitely anticipating one for August with 24.5 bps already priced in at this stage.
This is certainly going to keep things quite interesting for the aussie next week as the RBA not only has to balance out their decision on rates, but also plan out how they are going to communicate their next steps. In my view, the latter is going to be pivotal in how markets will react in the aftermath.
If they maintain a similar language to May and June, that should be a boost for the aussie as markets will take it as a sign that they are not relenting until inflation does come down more significantly.
However, if they "skip"/"pause" and reflect that in the language as well, we could see the more hawkish bets in the past few weeks recede. In turn, that should weigh on the currency as well.
