The Reserve Bank of Australia (RBA) will hold its first monetary policy meeting of the year on Tuesday. Much speaks in favor of a further interest rate hike of 25 bps. The more interesting question for the FX market is probably what will happen afterward, as economists at Commerzbank note.

Fed is expected to do much more than the RBA

“Another rate hike is likely to be decided tomorrow, followed by a further rate hike in March. The RBA should then slowly approach the end of the interest rate cycle. However, much of this is already priced in.”

“The focus will shift more to rate cut expectations in the second half of the year. Here, the Fed is expected to do much more than the RBA. This is largely due to the more robust economic outlook in Australia, which has recently further improved as a result of the lifting of the Chinese covid measures.” 

“We see the risks in AUD/USD rather on the upside.”