RBA meeting preview: 4 questions ahead of this month’s meeting

When is the RBA meeting next?

The RBA will meet on Tuesday the 1st of March, 2022 at 2.30PM

4 key questions for this RBA meeting:

1. Will the RBA reinforce its economic forecasts and guidance?

After pushing back on market pricing and economic forecasts for interest rate hikes this year at its last meeting, the RBA will be put under the microscope again about whether it sees an upside risk to the cash rate this year. Although suggesting current inflationary pressures ought to subside as global cost pressures ease, even despite forecasting a lift in CPI above 3% this year, the RBA has been resolute that because of subdued wages growth, any move to hike rates in 2022 would be premature. This view still sits in stark contrast to that which is discounted in interest rate markets, which despite recent geopolitical risks in Europe, is reflecting an expectation of five rate hikes this year.

2. What clues can the RBA give about Wednesday’s GDP data?

The next big piece of economic data for the markets to digest will be the December quarter GDP data. On a Q/Q basis, economists estimate that growth expanded by 3.0% after last quarter’s lockdown driven contraction, to take the annualized figure to 3.6%. However, there is a wide dispersion of estimates as the difficulty in forecasting in a pandemic environment continues. After last week’s moderate wage growth data, which printed at 2.3% y/y, the GDP numbers will dictate whether the assumed release of pent up demand will indeed fuel a strong recovery for the Australian economy this year and throw further weight behind the notion of imminent rate hikes.

3. What impact will the war in Ukraine have on monetary policy?

Arguably, the most significant new development for the RBA since its last meeting is the Russian invasion of Ukraine. The Australian economy has few major trade links to either economy. However, there may be positive and negative second-order effects from the conflict on the Australian economy. On one hand, sanctions on Russia may boost exports of commodities like wheat and gas, amongst others, on the one hand. On the other, the impact of a protracted and disruptive war could be higher costs across the globe and hotter inflation. Although the outlook for the skirmish remains unclear, the RBA’s view on how it could affect policy will be pertinent for market expectations

4. How could the AUD/USD react to the RBA meeting?

The AUD/USD is being driven predominantly by news flow pertaining to the war in Ukraine, and given the RBA is unlikely to materially change policy at this meeting, could only see fleeting movement off the back of it. The pair has shown remarkable resilience throughout the escalation of the Russian invasion of Ukraine, counter trending higher, perhaps in part due to optimism about the Australian economic outlook and higher commodity prices. Nevertheless, the primary downtrend remains intact. A break above 0.7300 would potentially negate this trend, and open a push towards 0.7400. A weekly close below 0.7100 would indicate a downside bias in the market.

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