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Hawkish RBA hold keeps AUD supported for G10 carry trade

Brown Brothers Harriman expects the RBA to keep the cash rate at 4.35%, with futures implying about a 50% chance of another 25 bps hike by year end.

Reported · Written up by our desk · Major Pairs

Brown Brothers Harriman’s Elias Haddad said the Australian dollar remains among the most attractive G10 currencies because it combines favorable interest rate carry with a hawkish Reserve Bank of Australia stance.

The RBA is expected to keep rates at 4.35% at its upcoming meeting, while reiterating it is prepared to increase the cash rate further if needed, given inflation that continues to exceed 3.0%, FXStreet reported.

RBA cash rate futures point to roughly a 50% chance of one more 25 bps increase by year end, and the central bank has room to pause its tightening cycle, according to the same analysis.

Haddad also cited expectations for real GDP growth to run below potential over the next two years and said the 4.35% cash rate is near the upper end of model-based estimates for the nominal neutral rate.

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