Economists at TD Securities discuss the Reserve Bank of Australia (RBA) interest rate decision and its implications for the AUD/USD pair.

Hawkish +25 bps (35% prob)

“If the Bank retains the same language as the Feb Statement: ‘The Board expects that further increases in interest rates will be needed over the months ahead…’, the market is likely to imply this as locking in 25 bps rate hikes in April AND May. AUD/USD 0.6800.”

Base Case: Neutral +25 bps (40% prob)

“If the Bank reverts to wording from the Dec'22 Statement that ‘The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course’, the market is likely to read this as the Bank being more uncertain and giving itself optionality on the policy rates outlook. In this instance, the next 25 bps hike could be April and/or May. AUD/USD 0.6730.”

Dovish +25 bps (25% prob)

“Text as in the ‘neutral’ scenario AND reintroducing ‘lag’ in monetary policy. The market is likely to read this as the RBA delivering one more hike and then pausing especially if the Bank acknowledges softer domestic data outcomes. AUD/USD 0.6690.”

See – RBA Preview: Forecasts from 9 major banks, hiking for the fifth time by 25 bps