Reserve Bank of Australia Expected to Raise Interest Rates

Now that the FOMC meeting is behind us, the next interest rate decision is in Australia. The Reserve Bank is widely expected to lift interest rates from 6.25 percent to 6.50 percent. Consumer price growth in the second quarter was 2.1 percent, which is within their 2 to 3 percent inflation target. However the prospect of higher inflation in the months to come will force the central bank to be proactive with raising interest rates. Retail sales have been hot and businesses are becoming more optimistic.

The market has already priced in an 80 percent chance for a rate hike, so like the Fed meeting, the key focus will be on the RBA comments afterwards. The market is actually not expecting the RBA to raise interest rates again this year. The Australian dollar has weakened going into the RBA rate decision due to softer than expected construction sector PMI data last night. The index dropped into contractionary territory, signaling that the housing market may have hit its peak. The Canadian and New Zealand dollars are also weaker despite a continued rise in New Zealand?s ANZ commodity price index.