RBA to hike 25 or 50bps?
The Reserve Bank of Australia (RBA) is expected to lift rates on Tuesday. The bank has 3 straight 50bps rate hikes and currently, the market is unsure whether RBA will raise rates by 25 or 50bps. In the recent meeting of RBA, the bank indicated that it does not yet have a defined course for raising rates, but it does anticipate doing so in the months to come.
Australia’s industrial and jobs numbers have been good, while global inflation has been high. Additionally, AUD/USD exchange rate has been declining and is almost at its lowest point since the pandemic. To raise the cash rate to 2.85%, this should pave the way for a 50bps hike. However, RBA Governor Lowe stated on September 16 that the RBA will eventually no longer need to raise interest rates by 50 basis points and is coming close to that point. As a result, the RBA might be tempted to raise rates by only 25bps.
On Wednesday, OPEC and its allies are set to meet on Wednesday to discuss how to manage the oil supply. WTI Crude has experienced extreme fluctuations over the last three months, ranging from $123 in June to $76.50 last week. According to “sources,” OPEC+ will lower production by 500,000 to 1,000,000 barrels per day (bpd) to lessen price volatility. A minor decrease in output should not have much of an impact on price overall because many counties’ real production already falls short of their quota.
US NFP takes center stage
The nonfarm payrolls statistics from the Bureau of Labor Statistics will be released on Friday. Consensus expectations, NFP will come in at 250k compared to 315k on the previous month which is slightly lower than the forecast. The unemployment rate however, is expected to remain the same at 3.7% while the average hourly earning is anticipated to increase by 0.3% month over month in September.
Despite the fact that a robust labor market is crucial for preserving investor confidence in the economy, investors would likely welcome a modest cooling off at this point since it might allow the Fed to slow down, which may halt the dollar’s gains for the time being.
However, a strong reading runs the risk of intensifying the slump in equities and bond markets as expectations for a more aggressive Fed would rise thereby bolstering the value of the dollar.