UBS Forecasts RBA Rate Hike on Persistent Inflation

Key Forecast Revision

UBS has revised its forecast, now expecting the Reserve Bank of Australia to implement two more interest rate hikes. The bank predicts a 25 basis point increase at the May 5 meeting, followed by another in August, which would bring the terminal cash rate to 4.6%.

Underlying Inflationary Pressures

The updated projection is based on data indicating persistent price pressures within the Australian economy. Although trimmed mean CPI data showed a minor downside surprise, UBS states that underlying inflation remains firm. This reinforces the RBA's current tightening bias as it continues to combat elevated inflation levels.

Impact on AUD/USD

In the near term, UBS maintains a cautious outlook on the Australian dollar, citing the prevailing strength of the U.S. dollar. The bank has set a target for the AUD/USD exchange rate at 0.70 by the end of June. However, looking ahead over a 12-month horizon, UBS holds a more constructive view, targeting 0.75.

Outlook Summary

The RBA is expected to maintain its hawkish monetary policy stance to manage inflation. Traders will be closely watching subsequent economic data releases for further clues on the central bank's next moves and the resulting impact on currency markets.

FAQ

Q: What is the new terminal cash rate forecasted by UBS for Australia?
A: UBS forecasts a terminal cash rate of 4.6% after anticipated rate hikes in May and August.

Q: What is UBS's short-term target for the AUD/USD exchange rate?
A: UBS targets the AUD/USD exchange rate at 0.70 by the end of June.

Source: Investing.com