On September 24th (next Tuesday) at 12:30 Beijing time, the Reserve Bank of Australia will hold its September interest rate decision, and the market expects interest rates to remain unchanged. However, UBS has advanced its expectation of the first interest rate cut by the Reserve Bank of Australia from May next year to February.

The Reserve Bank of Australia is expected to keep interest rates unchanged this week

A survey of 45 economists showed that all respondents expect Australian interest rates to remain at 4.35%, with 40 expecting this rate to continue until 2024. The median expected rate cut is 25 basis points in the first quarter of 2025.

Although Australia's inflation rate slowed to 3.5% in July, it is still above the upper limit of the Reserve Bank of Australia's target range of 2-3%. Secondly, the strong job market in Australia has become a reason for economists to expect the Reserve Bank of Australia to maintain stability.

ANZ Bank, National Australia Bank, and Western Pacific Bank expect Australian interest rates to remain unchanged this year. The Commonwealth Bank of Australia is expected to cut interest rates once before the end of the year.

Institutions expect the Australian Federal Reserve to cut interest rates earlier

Craig Vardy, head of fixed income at BlackRock's Australasia division, stated that the Reserve Bank of Australia does not seem to be eager to follow in the footsteps of other central banks in cutting interest rates this year, and even if it joins the ranks of rate cuts, the easing cycle will not deepen. As the Reserve Bank of Australia remains concerned about rising core inflation rates, all eyes should be on early 2025, as this is the earliest possible date for a rate cut.

UBS has advanced its expectation of the first interest rate cut by the Reserve Bank of Australia from May next year to February, and stated that the downward effect of the Fed's consistent interest rate cuts in the coming year will also provide room for relaxation for the Reserve Bank of Australia.

UBS Chief Economist George Tharenou stated that interest rates in Australia will remain relatively high for a longer period of time, at least relative to global trends. The global trend is becoming increasingly dovish.

UBS currently expects that the terminal interest rate in the United States will be lower, and the federal funds rate will quickly fall to a level far below the official cash rate of the Reserve Bank of Australia. He said that these factors mean that the Reserve Bank of Australia may start relaxing monetary policy earlier.

Concerns about the economies of major Asian countries and a 4.3% drop in iron ore eased bullish sentiment towards the Australian dollar. In addition, the rebound in US bond yields has limited the appreciation of the Australian dollar. However, the divergence in interest rate expectations between the Reserve Bank of Australia and the Federal Reserve limits downward space, and it is expected that AUD/USD will consolidate in the short term.

AUD/USD daily chart