The message for the Australian dollar is two-sided. A hike today, and any hint of a November follow-up, would support the currency in the near term, but NAB's argument implies the rate premium Australia now holds over other G10 markets could erode if traders begin pricing earlier RBA easing than at its peers. With a 25bp hike close to fully priced, the reaction is likely to hinge on the statement and Governor Bullock's press conference, in particular whether the board keeps November open. AUD/USD has been trading around 0.70, with US dollar strength and higher Treasury yields already a headwind.

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Earlier

• RBA preview: 25bp hike to 4.60% widely expected as sticky inflation lingers

• Sticky core inflation pushes RBA towards its highest cash rate since 2011
• RBA preview: A 25 bps rate hike is priced in, but what comes after that?
• All four major Australian banks now forecast RBA hike to 4.60% on September 29
• RBA governor Bullock flags inflation risks as higher neutral rates come into focus
• RBA's Bullock says supply shocks hard for policy to manage, flags second round risk
• RBA's Hunter says rates may need to rise again as inflation risks stay tilted higher

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NAB argues the RBA's next hikes may lift the Australian dollar near term, but leave Australia as one of the first G10 economies forced to reverse course.

Summary:

• The RBA is expected to raise the cash rate by 25bp to 4.60% today, and NAB sees a meaningful risk of another increase in November.
• NAB says Australian rates have moved from near the bottom of the G10 range to near the top.
• Argues Australia differs from the US, citing gradually rising unemployment, deteriorating business margins, falling house prices and less convincing growth signals.
• If the RBA delivers the tightening currently priced by markets, NAB says it may eventually be able to cut rates before other G10 central banks.
• Notes markets are not pricing a significant Australian easing cycle.
• Concludes further hikes can support AUD in the short term, but the medium-term risk is that Australia finishes tightening first and is among the first to reverse.

National Australia Bank argues the Reserve Bank of Australia could be among the first G10 central banks to finish hiking and start cutting, even as it prepares to lift the cash rate by 25 basis points to 4.60% today. The decision is due at 2:30pm AEST (0430 GMT/ 0030 US Eastern time), with Governor Michele Bullock's press conference an hour later.

NAB says Australian interest rates have moved from near the bottom of the G10 range to near the top. It sees a meaningful risk of a further increase in November, after making its own call for a September hike in late August. A move to 4.60% would be the highest cash rate since November 2011 and the fourth hike of 2026.

The bank's central argument is that Australia is not the United States. NAB points to gradually rising unemployment, deteriorating business margins, falling house prices and growth signals that are less convincing. On that basis, it says that if the RBA delivers the tightening currently priced by markets, it may eventually be able to cut rates before other G10 central banks. NAB notes that markets are not pricing a significant Australian easing cycle.

For the Australian dollar, NAB concludes that further hikes can offer support in the short term, but that the medium-term risk is the opposite. Australia may finish tightening first, it says, and then become one of the first central banks forced to reverse.

The view sits against a market that has moved firmly towards a hike. A Reuters poll found 33 of 34 economists expecting today's increase, and all four major banks are forecasting it. Economists are less united on the path beyond today. In the Reuters poll, 26 of 31 respondents saw the cash rate still at 4.60% at the end of December, with a minority expecting 4.85%, and the median forecast had the rate back at 4.35% by the end of 2027, though views split widely from the third quarter of that year. CBA has said a strong September-quarter trimmed mean inflation reading of 1% or more could put another hike on the table, and has pushed back the timing of its first expected cut to August 2027. Westpac has flagged the possibility of a split vote on the board.

Attention now turns to the RBA's statement and Bullock's press conference for any signal on whether November remains live, and to how quickly markets bring forward pricing for easing if the tightening cycle ends.

This article was written by Eamonn Sheridan at investinglive.com.

Source: Investing Live - Central Bank