Australian Dollar: RBA May Hike Again as Growth Slows, Warns TD Securities

The Reserve Bank of Australia (RBA) could deliver another interest rate increase even as the country’s economic growth shows signs of slowing, according to a new analysis from TD Securities. The forecast has sharpened the focus on the Australian dollar’s near-term trajectory and raised questions about the central bank’s policy balancing act.

TD Securities: Persistent Inflation Pressures Remain Key

TD Securities economists argue that underlying inflation remains too high for the RBA to pause its tightening cycle. While gross domestic product (GDP) data has softened, the labor market remains tight and services inflation is proving stubborn. This combination, in their view, leaves the door open for at least one more rate hike in the coming months. The Australian dollar has been sensitive to these shifting expectations, with the AUD/USD pair experiencing increased volatility as markets reassess the peak cash rate.

Growth Slowdown Complicates RBA Decision

Australia’s economy expanded at a modest pace in the last quarter, below the RBA’s own forecasts. Household consumption has weakened under the weight of higher borrowing costs and elevated living expenses. However, TD Securities notes that the RBA has historically prioritized inflation control over short-term growth concerns. The central bank’s own projections show inflation returning to the 2–3% target band only by late 2025, suggesting further tightening may be necessary to avoid entrenched price pressures.

Market Implications for the Australian Dollar

If the RBA follows through with another hike, the Australian dollar could find short-term support. Higher interest rates typically attract foreign capital, boosting demand for the currency. However, the broader outlook remains clouded by China’s economic slowdown — a key factor for Australia’s export-driven economy. Traders are watching RBA Governor Michele Bullock’s upcoming speeches for any shift in tone that could confirm or contradict TD Securities’ view.

Conclusion

TD Securities’ call for another RBA rate hike amid slowing growth highlights the difficult trade-offs facing Australian policymakers. For investors and businesses, the key takeaway is that inflation remains the central bank’s primary concern, and the Australian dollar will remain sensitive to data releases and RBA communication in the weeks ahead. The divergence between domestic rate expectations and global economic headwinds will likely keep AUD volatility elevated.

FAQs

Q1: Why does TD Securities expect the RBA to hike again?
A1: TD Securities points to persistent underlying inflation and a tight labor market as reasons the RBA may need to raise rates further, despite slowing GDP growth.

Q2: How would a rate hike affect the Australian dollar?
A2: A rate hike typically supports the Australian dollar by attracting capital inflows. However, gains may be limited by external factors like China’s economic slowdown.

Q3: When might the RBA make its next move?
A3: The RBA’s next policy meeting is scheduled for early next month. TD Securities expects the decision to be data-dependent, with key inflation and employment figures likely to influence the outcome.