RBA assistant governor Sarah Hunter said further rate rises may be required this year to restrain inflation, lifting expectations of a move at the 29 September policy meeting. The comments followed discussion of the board\u2019s concern that price growth has remained elevated for an extended period and that risks are building of it becoming entrenched, alongside uncertainty that inflation could land higher than current forecasts.<\/p>\n\n
The RBA has lifted the cash rate three times this year, by 75 basis points in total, taking it to 4.35%, back to post-pandemic levels. In response, money markets are pricing a 94% probability of a 25 basis point increase at the 29 September meeting, according to Prime Terminal, with pricing clustered around that outcome.<\/p>\n\n
We see a clear path for derivative traders as the September 29 RBA meeting approaches with a 94% chance of a 25-basis-point hike. Given official warnings that inflation could stay higher than expected, we should prepare for the cash rate to rise above its current 4.35% level. Traders can exploit this by shorting ASX 30-day Interbank Cash Rate Futures, as prices will drop when yields climb.<\/p>\n\n
This hawkish outlook also provides a strong setup for currency traders. We recommend buying AUD\/USD call options or going long on the Australian dollar, which historically gains strength when the RBA outpaces other central banks. Australian inflation has averaged over 3.5% recently, meaning the RBA has plenty of room to keep tightening compared to its global peers.<\/p>\n\n
Meanwhile, we expect the Australian stock market to face downward pressure as borrowing costs rise. Traders should consider buying put options on the ASX 200 index or shorting SPI 200 futures to hedge against weakness in property and retail stocks. Looking back, similar rate hikes in recent years have triggered quick 3% to 5% pullbacks in the index, offering a reliable blueprint for the weeks ahead.<\/p>\n\n\n\n