RBA holds cash rate at 3.60% as expected; Aussie dollar steadies as hike bets fade
The Reserve Bank of Australia kept the cash rate unchanged at 3.60%, a unanimous decision that matched market expectations. The statement leaned cautious on inflation persistence but offered few hawkish surprises, knocking back near-term hike odds and leaving AUD/USD little changed after a brief dip.
At a glance
- RBA leaves the cash rate at 3.60% (prior 3.60%), decision unanimous.
- Statement notes upside risks to inflation but says it will take “a little longer” to assess persistence.
- Labour market still “a little tight”; economic activity continues to recover.
- Global uncertainty is “significant,” but spillovers to Australia’s key partners have been limited so far.
- AUD/USD slipped about 15 pips on the headline before recovering; pricing for a March hike eased to ~27% from ~33%.
- Futures imply the next hike only by August 2026; next policy decision on 3 February.
- Upcoming inflation prints flagged as key catalysts for the AUD.
What the RBA said
The Board held rates and maintained data dependence, acknowledging that recent readings tilt inflation risks to the upside while stressing it needs more time to gauge how sticky price pressures are. Policymakers said labour conditions remain somewhat tight and activity is still recovering. On the external front, the Bank cautioned that global uncertainty remains elevated, yet the growth and trade performance of Australia’s major partners has seen minimal disruption so far.
The tone keeps optionality intact into early 2026 without reintroducing a clear tightening bias. With the last rate cut delivered in August, today’s hold reinforces a watchful stance heading into year-end data.
Market reaction
FX: AUD/USD initially fell around 15 pips before retracing, a tell that markets had braced for stronger hawkish guidance. The fade in immediate hike probabilities to roughly 27% for March from about 33% pre-decision weighed modestly on the currency’s knee-jerk move before stabilisation set in.
Rates: Front-end Aussie yields edged softer as traders pared near-term tightening risks, while the longer end was broadly steady, reflecting a market comfortable with a prolonged pause unless inflation re-accelerates.
Equities and risk tone: The balanced message helped risk appetite in local markets, with the absence of a hawkish surprise supporting a mild “goldilocks” read for rate-sensitive stocks. Liquidity conditions were orderly and FX volatility stayed contained.
Policy outlook: a long pause, data in the driver’s seat
Futures price the first hike only by August 2026, implying markets see the current level as a potential trough barring an upside inflation surprise. The RBA’s emphasis on assessing persistence of price pressures puts the spotlight squarely on incoming inflation prints. Any re-acceleration or stickiness in services prices would quickly revive near-term tightening bets.
What traders are watching next
– Inflation: Headline and trimmed mean CPI will be the decisive inputs for early-2026 pricing.
– Labour market: Any renewed tightening in unemployment or wage growth could re-price March–May hike odds.
– Activity: High-frequency retail and housing indicators to test the “recovery continues” narrative.
– Global backdrop: China demand signals and global rates—particularly U.S. front-end yields—remain key for AUD crosses.
Trading take
With the RBA on hold and guidance finely balanced, the path of least resistance for AUD hinges on CPI. A benign inflation run would anchor front-end yields and cap AUD rallies; any upside surprises could steepen the front end and lift AUD/USD toward recent tops. Range trading likely persists until the next major inflation release, with crosses reacting to relative central bank paths. This analysis was prepared for BPayNews.
FAQ
What did the RBA decide today?
The RBA kept the cash rate unchanged at 3.60% in a unanimous decision, aligning with market expectations.
How did AUD/USD react to the decision?
The pair slipped roughly 15 pips on the headline but quickly recovered, suggesting positioning was braced for a more hawkish signal that did not materialize.
What does the statement say about inflation?
The Bank flagged upside risks but emphasized it needs more time to judge how persistent inflation pressures are, reinforcing a data-dependent stance.
Are markets pricing a near-term rate hike?
Near-term hike odds eased—pricing for a March move slipped to around 27% from about 33%. Futures currently imply the next hike only by August 2026.
When is the next RBA meeting?
The next policy decision is scheduled for 3 February.
What data will matter most for the AUD from here?
Inflation prints are crucial, followed by labour market metrics and domestic demand indicators. These will shape rate expectations and AUD trajectory.
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