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RBA Meeting Minutes: Understanding the RBA's rate hike probability

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An in-depth analysis of the Reserve Bank of Australia's July Board meeting minutes, highlighting the impact of unemployment rates, Q2 CPI reports, and retail sales on the likelihood of an August rate rise.


original-size.webpSource: Bloomberg

 Tony Sycamore | Market Analyst, Australia | Publication date: Monday 24 July 2023 

The Reserve Bank of Australia (RBA) recently published the meeting minutes for their July Board meeting, a key event that has put the spotlight on the incoming data ahead of the RBA's August Board meeting.

The financial market was put on notice last Thursday following a firm labour force report. Despite a record 400bp of RBA rate hikes, the unemployment rate remained steady at 3.5%, a record low. This prompted the interest rate market to increase the probability of an RBA rate hike in August from 20% to 50%.

A hotter-than-expected Q2 CPI report and robust retail sales this week could likely see the probability of an RBA rate rise in August rise to nearly 80%.

Inflation expectations for the Q2 CPI report

The market expectations are for headline inflation to fall to 6.2% YoY from 7%, with a fall in fuel prices being the key driver. The range of expectations varies from 5.8% to 6.7%.

The RBA's preferred measure of core inflation, the Trimmed Mean, is expected to fall to 6% YoY from 6.6% previously. The range of expectations varies from 5.8% to 6.3%.

If core inflation is equal to or higher than 6.1%, i.e., above the RBA's forecast of 6%, it would likely be enough to see the RBA raise rates in August by 25bp to 4.35%.

AU trimmed mean inflation chart


RBAtrimmedmean1270723.pngSource: RBA

RBA forecasts


RBAforecasts1270723.pngSource: RBA

AUD/USD technical analysis

Last week, the AUD/USD ended lower at .6729 (-1.58%) as the US dollar rallied on Friday due to short covering ahead of this week's data-rich calendar and reports suggesting the BoJ will maintain its YCC unchanged at the Friday meeting.

In our previous AUD/USD update, we noted a double top at .6900c and suggested: "Until the AUD/USD mounts a successful attack on .6900c, allow for a retracement back towards the 200-day moving average at .6700c." The subsequent pullback reached the 200-day moving average, now at .6718c.

While the high level of event risk this week leaves us neutral on the AUD/USD's direction, we see support at .6720/00 as the bull/bear pivot. If the AUD/USD remains above this support, a rebound back towards .6800c is plausible. However, a sustained breach below .6720/00 may trigger a deeper decline towards .6600c.

AUD/USD daily chart


original-size.webpSource: TradingView


  • TradingView: the figures stated are as of July 20, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
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