RBA set to hold at 3.6% as markets brace for hawkish tone risk and AUD volatility
The Reserve Bank of Australia is expected to leave its Cash Rate unchanged at 3.6% on Tuesday, with traders laser-focused on the policy statement and Governor Michele Bullock’s press conference for any hawkish shift that could reprice 2026 hikes and jolt the Aussie dollar.
Decision preview: tone over torque
With no new economic projections due, the language around inflation, policy restrictiveness and the near-term reaction function will drive pricing. The RBA has flagged that parts of the recent inflation pickup look temporary, yet officials have also underscored a willingness to act if price pressures prove stickier.
– Deputy Governor Andrew Hauser recently suggested roughly two-thirds of the Q3 CPI surprise was likely “noise,” keeping the door open to patience.
– Governor Bullock told lawmakers that if inflationary pressures appear more permanent, it would “have implications for the future path” of policy—market shorthand for a potential hike if upside surprises persist.
What to watch in the statement
A hawkish pivot would likely include:
– Stronger concern about underlying inflation and persistence risks.
– Language implying the RBA no longer views policy as clearly restrictive.
– A pushback against the idea of further rate reductions in the forecast horizon.
Any combination of those would tilt the balance toward additional tightening in 2026 and lift front-end yields.
Press conference cues
Michele Bullock is expected to emphasize data dependence while acknowledging mixed signals: some temporary price pressures fading, but global services inflation and domestic costs still elevated. Clearer warnings about persistence—and a reminder that the Board will not hesitate to raise rates if needed—would embolden hawks and bring forward hike expectations.
Market pricing and FX setup
Rates markets imply no chance of a near-term cut and a gradual tightening path next year:
- December cut: 0% probability
- June 2026 rate hike: 50% probability
- August 2026 rate hike: 100% probability
- Total 2026 tightening: 35 bps (OIS-implied)
In FX, a hawkish surprise typically supports AUD via higher front-end yields and wider rate differentials versus the USD and JPY. A cautious hold that leans into the “temporary” inflation narrative would do the opposite, pressuring AUD and bull-steepening the ACGB curve. Implied AUD/USD volatility has tended to firm into risk events like this, with liquidity often thinning around the statement and Q&A.
Data calendar: the next catalysts
The next test for the RBA’s resolve arrives with monthly November CPI on January 7, 2026, followed by quarterly Q4 CPI on January 28, 2026. The next RBA meeting is scheduled for February 4, 2026, giving the Board two fresh inflation reads to reassess policy stance. Labor market prints, retail sales and business surveys will shape the margins, but inflation is the swing variable.
Trading scenarios
– Hawkish hold: Emphasis on persistence risks and policy not clearly restrictive. AUD rallies, 2–3Y ACGB yields push higher, hike odds shift earlier into mid-2026.
– Cautious hold: Inflation framed as easing on a quarterly basis, emphasis on patience. AUD softens, curve bull-steepens, terminal pricing drifts lower.
– Clear tightening bias: Explicit guidance that further hikes may be needed. Strong AUD outperformance versus low-yielders; equities could wobble as financial conditions tighten.
Key points
- RBA expected to keep the Cash Rate at 3.6%; guidance will be the market mover.
- Hawkish risks center on stronger inflation persistence language or hints policy is no longer clearly restrictive.
- Bullock: Persistent inflation would have “implications” for policy; near-term upside CPI surprises could force a hike.
- Traders eye November CPI on January 7, 2026 and Q4 CPI on January 28, 2026 as key signposts before the February 4, 2026 meeting.
- OIS pricing: 0% odds of a December cut; 50% chance of a hike by June 2026; 100% by August 2026; about 35 bps total tightening in 2026.
FAQ
When is the RBA decision?
The decision is due Tuesday, followed by Governor Michele Bullock’s press conference. No updated economic projections will be released at this meeting.
What is the market expecting?
An unchanged Cash Rate at 3.6%, with a cautious tone. Rates markets price roughly 35 bps of tightening through 2026.
What would count as a hawkish shift?
Stronger concern over inflation persistence, indications that policy is no longer clearly restrictive, or explicit pushback against the prospect of future cuts. Any of these could bring forward 2026 hike expectations.
How could the Australian dollar react?
A hawkish hold typically boosts AUD, especially against USD and JPY, via higher front-end yields. A cautious, “wait-and-see” message would likely weigh on AUD and support a bull-steepening of the ACGB curve.
What data will shape the RBA’s next steps?
Monthly November CPI on January 7, 2026 and the Q4 CPI on January 28, 2026 are pivotal. Labor market conditions, retail sales and business surveys will also inform the Board’s assessment of inflation persistence.
When is the next RBA meeting?
February 4, 2026, giving policymakers time to digest two fresh inflation prints and recalibrate guidance if needed.
Reporting by BPayNews
