SYDNEY: The Australian dollar edged higher on Monday as investors wagered the country’s central bank would sound more hawkish at a policy meeting this week, with even a rate hike not outside the realm of possibilities.

The Reserve Bank of Australia (RBA) concludes its two-day meeting on Tuesday and is generally expected to keep rates at 4.35% having been on hold since last November.

That was the call of all but one of 25 analysts polled by Reuters, with the outlier tipping a hike to 4.6% given inflation had proved surprisingly stubborn in the first quarter.

Markets are pricing in around a one-in-10 chance of a hike, which rises to 4-in-10 by September.

All the major local banks - ANZ, CBA, NAB, and Westpac - still think the next move will be a rate cut, albeit not until November at the earliest.

However, recent high readings for home-grown costs will likely force the RBA to nudge up the near-term inflation outlook and test the Board’s confidence that inflation would return to its 2-3% target band by late 2025, from 3.6% in the first quarter.