The Australian sharemarket is expected to open lower on Monday as investors position ahead of the Reserve Bank of Australia’s policy meeting, where markets are anticipating a possible third consecutive interest rate increase.
Futures for the S&P/ASX 200 indicate a decline of 23 points, or 0.26%, at the open, following a period of sustained weakness in which the index has closed lower in eight of the past nine sessions.
Investor caution persists despite continued strength on Wall Street, where both the S&P 500 and Nasdaq Composite reached fresh record highs on Friday, rising 0.3% and 0.9%, respectively, supported by gains in major technology stocks.
The Dow Jones Industrial Average, however, edged 0.3% lower.
The anticipated decline follows a brief rebound on Friday, when the S&P/ASX 200 Index rose 64.0 points, or 0.7%, to close at 8,729.8, with nine of the 11 sectors finishing in positive territory.
Attention is now firmly on the RBA’s upcoming board meeting on Tuesday. Market pricing suggests a high probability of further policy tightening, with the ASX's RBA Rate Tracker indicating a 74% chance of a 25 basis point increase that would lift the cash rate to 4.35%.
Analysts at ANZ said in a note to clients on Friday: "We continue to expect the RBA to raise interest rates by 25bp at its meeting on Tuesday 5 May. For the majority of the Board, the combination of (what the RBA considers to be) a tight labour market, year-on-year trimmed mean inflation of 3.5% in Q1 2026 and risks to inflation expectations will support taking the cash rate to 4.35%.
"The decision will however be close, and we anticipate several members to vote in favour of keeping rates on hold."
The bank added that the central bank is likely to maintain a gradual approach to policy tightening.
"Looking further forward we expect the RBA will stay on its ‘narrow path’. As shown in the chart of the week, the RBA’s core inflation ‘miss’ relative to target is broadly comparable to other central banks. However, Australia’s unemployment rate is materially below its pre-pandemic average.
"That’s not the case in other economies. With a much lower unemployment rate (relative to the pre-pandemic average) but a similar inflation performance relative to target and its peer central banks, the RBA has engineered an impressive trade off.
"With inflation reflecting global as well as domestic factors, forcing a more rapid return to target would likely come at a significant cost to the labour market.
"We think such a trade-off is unlikely to be desirable for the RBA, which is one reason why we expect the cash rate to remain at 4.35%, assuming a 25bp increase next week."
In fixed income markets, yields declined, with the 10-year government bond yield falling 0.6% to 4.982%, while the 2-year yield slipped 0.4% to 4.689%.
