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Hawks Down Under? Markets on watch for Australian central bank

If it’s good enough for the eurozone, the UK and Canada, will Australia join the global hawkish chorus?

The betting among analysts, as the Reserve Bank of Australia prepares to meet tomorrow, is ‘don’t be so sure’.

The RBA is expected to hold rates steady at a historic low of 1.5 per cent, analysts said. But several think it will shy away from sounding too upbeat.

Comments made last week by European Central Bank president Mario Draghi, Bank of England governor Mark Carney and Bank of Canada Stephen Poloz convinced many investors the post-crisis era of easy money was coming to an end.

Mr Draghi sent the euro to its highest level this year on Tuesday after investors interpreted his comments as as signal the ECB was to phase out its economic stimulus measures. The BoE’s Mr Carney said on Wednesday “some removal of monetary stimulus is likely to become necessary” while his Canadian counterpart remarked rate cuts have “done their job”.

ANZ research said the market is on the hunt for “hawkish central bank surprises” but said it does not expect the RBA to satiate this demand. It said it did not agree that there is a “globally coordinated shift in policy taking place”.

The economy is still running at levels just above stall speed and the recent improvement in employment will not be enough to prompt a shift in bias. We think the RBA is comfortably on hold and will not want to send a signal to the contrary.

Australian dollar bulls beware.

ANZ added that the slack in the Australian economy lends the RBA time and that the central bank’s rate is well above that of other central banks.

ING also said it does not expect RBA officials to “join the latest hawkish central bank chorus”, adding that it expects it to retain the phrase “an appreciating exchange rate would complicate” the economic recovery. ING also pointed to any improvement in the labour market being offset by broader structural concerns.

The RBA in June pointed to mixed conditions in the labour market as wage growth remains stagnant.

The Australian dollar was 0.2 per cent weaker against the dollar ahead of the RBA meeting at $0.7676, hovering at a three-month high.