RBA Nov rate hike bets surge to over 50% after Hauser warning on inflation

Market-implied odds of a 25-basis-point RBA hike to 4.85% at the early-November meeting rose to about 51% on Wednesday from 22% on Tuesday, after Deputy Governor Andrew Hauser said the inflation outlook was “materially worse.” Hauser cited upside risks from higher oil and gas prices and electronics costs, while Australian CPI was 4% in August versus the RBA’s 2%–3% target; September and third-quarter CPI data were due the following week. Goldman Sachs also shifted to expecting a November hike, which would be the RBA’s fifth rate increase this year.

Analysis

The key market question is whether inflation is broadening beyond energy and imported goods, not whether a single hike is possible. A hike priced near a coin flip leaves room for a sharp front-end repricing if quarterly underlying inflation is firm, but also makes chasing the move before CPI unattractive. The unemployment increase raises the risk that policy tightening will hit household demand and credit quality with a lag; it does not, by itself, settle the inflation outlook.

In the next days, CPI is the decisive catalyst; through the November decision, the RBA’s characterization of underlying and services inflation matters more than headline energy effects. Over 6–18 months, persistent rates would weigh on rate-sensitive housing, discretionary spending and commercial property, while increasing funding and deposit competition for banks. Bank outcomes are mixed: higher rates can support asset yields, but deposit costs and borrower stress can offset that benefit. AUD support is also conditional: rate differentials help, but energy-driven inflation can worsen the growth/income mix for an energy-importing economy.

Contrarian angle: market attention may over-focus on the next 25bp move and underprice the possibility that a one-off energy shock fades—or, conversely, that pass-through and business pricing make inflation sticky. The CPI composition and subsequent RBA guidance should decide direction. No company-specific earnings or valuation conclusion is justified by the supplied information.

Key Decisions for Investors

• Do not chase outright Australian duration shorts before CPI with the hike probability already around 51%. If underlying or services inflation is broad-based, consider a defined-risk payer position in short-dated AUD rates or a short in 3-year Australian government bond futures after the release; exit or avoid if underlying inflation is softer and front-end hike pricing retreats.
• Treat the CPI release as the near-term trigger: monitor trimmed-mean and services inflation, not just headline CPI. A headline overshoot concentrated in energy without broader persistence is a weaker signal for sustained RBA tightening.
• Consider a tactical long AUD versus NZD only if CPI strengthens the relative RBA repricing and the RBNZ outlook does not move similarly. Keep exposure small: a fall in commodity prices, weaker Australian growth data, or a reversal in rate differentials would falsify the trade.
• Avoid a blanket short of Australian banks. Reassess after bank updates on deposit costs, loan arrears and credit provisioning; evidence that funding costs or impairments are rising faster than asset yields would favor underweighting banks relative to less rate-sensitive Australian equities.