CBA Dig Into AUD’s Reaction To Previous RBA “Surprises”

CBA note that “the RBA’s policy meeting today is ‘live’ following last week’s very large increase in the CPI. The cash rate futures market has priced 14bp of rate hikes. By contrast, the CBA house view is the RBA will leave the cash rate at 0.10%, switch to an explicit tightening bias, wait for the Q1 wage cost report in mid May and hike by 0.15% in June. Of the three occasions when the RBA left the cash rate unchanged in contrast to market expectations for a hike, AUD/USD decreased by an average of 0.7% 30 minutes after the RBA’s decision. History also shows AUD/USD’s response can range from an increase of 0.3% to a decrease of 0.7% when a hike is delivered as expected. AUD’s inconsistent response to an ‘as expected’ decision suggests the text of the RBA’s post meeting statement is important.”