Overnight indexed swaps have priced in a rate of 3.30% for the February meeting and a peak cash rate of 3.7%. The prospect of a 25bp hike in February -- and possibly March -- helped the aussie rally from 0.7040 to 0.7100 recently, and the currency is expected climb as the RBA tightens. (See MNI INSIGHT: Australian Macro Chart Pack - RBA To Tighten Further, AUD Still Undervalued)
Policymakers face a jobs market that is no longer tightening and the prospect of slower growth, but the RBA is "resolute" in its determination to return inflation to its 2-3% target. The full impact of higher interest rates is yet to filter through to mortgage payments, and more than AUD400 billion of fixed rate mortgages are set to mature in 2023, but the RBA remains optimistic that a strong jobs market and high savings will make higher rates manageable for most borrowers. (See MNI POLICY: RBA Sees Savings, Jobs Cushioning Mortgage Stress).
