A quarter-point move widely anticipated
Australian shares are heading into Monday's session with investors reluctant to commit, as the market waits for the Reserve Bank of Australia's decision on Tuesday. Economists broadly expect the central bank to raise the cash rate to 4.85 per cent, a level not seen in 18 years. Money markets are pricing a strong likelihood of a quarter-point tightening, according to the reporting.[S1][S2]
The case for another increase rests on inflation that remains well above the central bank's 2.5 per cent target. Recent figures put headline inflation at 3.9 per cent year-on-year, with core inflation at 3.7 per cent. Several major Australian banks and a number of economists suggest this could be the final step in the present tightening cycle, though that view is not settled.[S1]
What investors will watch after the decision
Traders will parse the RBA's policy statement and the governor's media conference for signals about where rates go next. Deputy Governor Andrew Hauser is scheduled to speak on Thursday, giving another opportunity to gauge the central bank's thinking. Any hint that the peak has been reached would matter as much to markets as the increase itself.[S1]
Global mood darkens as oil and crypto swing
Offshore sentiment weakened on Friday, dragging major US benchmarks lower. Two worries stood out: doubts that large artificial intelligence investments will earn adequate returns, and reports of a hack at Binance, the world's largest cryptocurrency exchange, which pushed digital asset prices down. Oil, by contrast, climbed to six-month highs.[S1]
The oil move reflects concern that the Iran conflict could intensify now that the US midterm elections are over. National Australia Bank flagged the possibility of fresh Middle East tensions after the vote, which could extend shortages in energy supply. Investors are also looking ahead to US non-farm payrolls on Friday and earnings from Palantir and Apple.[S1]
The AI sector is under particular scrutiny. Expectations of tighter regulation once the elections are settled, combined with the fast-changing nature of the technology, point to volatility. For Australian investors, these cross-currents add to the caution already generated by the domestic rate decision.[S1]
