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The Reserve Bank of Australia is set to raise interest rates again on Tuesday, but there is an element of uncertainty as to the scale of the hike, with the outcome likely to impact the Australian Dollar.

The RBA hiked rates by 25 basis points on October 04 and the market is biased for a repeat move on November 01, however accelerating inflation means the central bank could be forced to perform an about-turn.

"The RBA may now be facing a tough decision at the upcoming meeting having just stepped-down the pace only to then see a significant beat in Q3 trimmed mean CPI inflation," says economist Kamakshya Trivedi at Goldman Sachs.

Over the twelve months to the September 2022 quarter, Australian CPI rose 7.3% said the ABS. The news came just days after the Reserve Bank of Australia surprised markets by hiking 25 basis points, a decision that was met with a lower Australian Dollar.

Goldman Sachs economists continue to expect another 25bp hike at the November meeting, in line with market pricing, but they acknowledge that the stronger-than-expected inflationary pressures have raised the odds that the RBA decides to hike rates by 50bp instead.

Such a move would provide another surprise to the market, albeit one that could support the Australian Dollar.

Ahead of Tuesday's decision, the Australian Dollar was softer against the U.S. Dollar but higher against Sterling.

The Pound to Australian Dollar exchange rate (GBP/AUD) is quoted at 1.8038, taking the rate on Aussie dollar payments at typical high-street banks to around 1.7532 and that offered by specialist payment providers to approximately 1.7983.

"Recent spike in CPI re-ignited some expectations for RBA to turn up the tempo in raising rate by 50bps. We still expect the pace of hikes to be maintained at 25bps as RBA assesses the outlook for inflation and growth," says Christopher Wong, FX Strategist at OCBC Bank.

But economists at Société Générale are expecting the RBA to perform a u-turn, with strategist Kit Juckes expecting this to prove broadly supportive of the Aussie Dollar.

"Our economists expect a 50bp hike, to 3.1%, which could give the AUD a lift," says Juckes in a note out Monday, adding that at current levels the Australian currency is looking "very cheap".

Carol Kong, strategist at Commonwealth Bank of Australia, is looking for the RBA to raise the cash rate by 25bp, in line with both market pricing and the consensus forecast.

"However, we see a risk of a 50bp hike following last week’s strong Q3 22 CPI. We also expect the RBA to revise its inflation forecasts higher. High Australian inflation also raises the risk of a higher end‑point for the cash rate. A higher terminal cash rate would narrow Australia‑US interest rate differentials and lessen one headwind facing AUD," says Kong.