The Reserve Bank of Australia (RBA) is widely expected to keep interest rates unchanged, with markets already pricing in the decision ahead of tomorrow’s announcement. Despite a higher-than-expected inflation print in November, the RBA is unlikely to signal any imminent rate hikes, potentially limiting further Australian Dollar (AUD) gains, Commerzbank's FX analyst Michael Pfister notes.

AUD bulls may face disappointment

"Early tomorrow morning (European time), the Australian central bank (RBA) will announce its final interest rate decision of the year. All the economists surveyed by Bloomberg expect interest rates to remain unchanged. Decision-makers already rejected the idea of a further interest rate cut in November, and not much has changed since then. Instead, the first full monthly inflation report came as a further surprise on the upside, moving further away from the upper limit of the 2-3% target range at 3.8% year-on-year."

"The actual interest rate decision is likely to have been fully priced in, given current expectations. However, it is questionable whether there will be any indications in the coming months that would support expectations of interest rate hikes in the next year. These expectations only really emerged last month and were certainly one of the factors behind the higher AUD/USD levels."

"Nevertheless, we do not expect the central bank to signal a rate hike more clearly tomorrow, given that it recently still delivered rate cuts. You never know, but that would be an extremely quick turnaround for a G10 central bank. Some AUD bulls could therefore be disappointed tomorrow, which would hurt the Aussie."