RBA expected to keep interest rate on hold amid sticky inflation and tight labor market conditions

• Australia's benchmark interest rate is set to stay unchanged at 4.35% in November.
• The focus remains on Reserve Bank of Australia Governor Michele Bullock's comments and updated economic forecasts.
• The Australian Dollar could wilt if RBA Governor Bullock ramps up bets for a December rate cut.

The Reserve Bank of Australia (RBA) is expected to sit tight yet again on its monetary policy, extending the pause into the eighth straight meeting on Tuesday.

The RBA is set to maintain the Official Cash Rate (OCR) at 4.35% after its November policy meeting. The decision will be announced at 03:30 GMT, followed by Governor Michele Bullock's press conference at 04:30 GMT.

Reserve Bank of Australia to stand pat again

With a no-rate change decision fully priced in this month, the market's attention will be on the RBA's updated economic forecasts and Governor Michele Bullock's press conference for fresh hints on the timings of the central bank's first interest rate cut since its post-covid tightening cycle.

Sticky underlying inflation and tight labor market conditions continue to back the case for a cautious stance by the Australian central bank.

The RBA's preferred inflation gauge, the annual Trimmed Mean Consumer Price Index (CPI), slowed to 3.5% from 4.0% in the third quarter but stayed above the Bank's 2%-3% target. The service-sector inflation also remained elevated.

Additionally, the RBA's annual report, published on October 25, reiterated that inflation would not be sustainable within the 2%-3% target for 'another year or two'. 

Meanwhile, the Australian economy added 64,100 jobs in September, beating the estimated net gain of 25,000 jobs. Of the new jobs created in September, 51,600 were full-time roles. The Unemployment Rate stood unchanged at 4.1% in September, against the forecast of an increase to 4.2%.

These data points potentially rule out any policy change this week and for the rest of this year. Markets are currently pricing in less than 20% probability of a Christmas rate cut by 25 bps, according to BBH analysts. 

Previewing the RBA policy decision, analysts at TD Securities (TDS) said: "The RBA is unlikely to debate the case for hiking but we don't believe the forecasts to reveal the Bank is considering cuts over coming months either. For now, we stick to May 2025 as the first RBA cut."

How will the RBA interest rate decision impact AUD/USD?

The Australian Dollar (AUD) is moving away from its lowest level in two months against the US Dollar (USD) in the lead-up to the RBA announcements. Will the central bank provide extra legs to the AUD/USD recovery?

The ongoing upswing could continue if the RBA repeats that "the Board is not ruling anything in or out,' while acknowledging upside risks to inflation. Thus, the Bank's prudent approach is expected to drive AUD/USD back toward 0.6700.

Conversely, the pair could witness a sharp sell-off toward 0.6500 in case RBA Governor Michele Bullock says in her post-meeting press conference that the Board discussed cutting rates as an option at the meeting.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes key technicals for trading AUD/USD on the policy outcome. "AUD/USD has come up for air, testing the 200-day Simple Moving Average (SMA) ahead of the RBA decision. The 14-day Relative Strength Index (RSI) rebounds sharply but remains below the 50 level, currently near 41, keeping sellers hopeful." 

"Buyers need acceptance above the 200-day SMA at 0.6629 for a sustained recovery. The next topside barriers are seen at the 0.6700 threshold and the 50-day SMA at 0.6730. On the flip side, a renewed decline could test the two-month low of 0.6537, below which the 0.6500 level will offer some respite to buyers. Further south, the August 6 low of 0.6472 will come into play," Dhwani adds.