RBA seen holding at 3.60% as markets price extended pause into 2026; AUD eyes hawkish cues
The Reserve Bank of Australia is widely expected to leave rates unchanged at 3.60% in December, with a fresh survey showing consensus shifting toward a prolonged hold through 2026. That tilt toward “higher for longer” could underpin the Australian dollar and keep front-end yields elevated as traders parse the statement for any tightening bias.
Unanimous call for a December hold
A broad economist survey points to a unanimous decision to keep the cash rate at 3.60% on 9 December. Beyond the near-term hold, the median view has swung toward no policy changes through the end of 2026—an abrupt pivot from calls for cuts as recently as last month.
Data forcing a rethink on cuts
- Monthly CPI quickened to 3.2%, nudging above the RBA’s 2–3% target band, a sign policy may not be restrictive enough.
- Growth has outperformed, with solid annual GDP momentum.
- The labour market remains resilient, limiting the urgency for easing.
Among economists with forecasts to end-2026, 19 of 33 expect no change in the cash rate, 10 still see cuts, and four anticipate at least one hike. Interest-rate futures mirror the shift: pricing implies better than a 70% chance of a hike by late 2026, reflecting a fatter tail of upside risks on inflation and wages.
FX and rates implications
For FX, a steady hand coupled with sticky inflation risks is typically AUD-supportive via rate differentials, particularly if the RBA nods to a tightening bias or signals low tolerance for upside inflation surprises. In rates, a prolonged hold keeps pressure on the short end, while curve moves into year-end may be dampened by thinner liquidity and range trading ahead of key data.
Among Australia’s big four banks, Westpac remains the outlier with cuts pencilled in for 2026, while ANZ, CBA and NAB see an extended hold. The market will scrutinize whether policymakers reiterate that “further tightening” remains on the table if inflation doesn’t ease fast enough, a line that could support AUD on the margins and keep swaps and bill futures sensitive to incoming data.
What traders are watching next
- Statement tone: Any tightening bias or reference to persistent price pressures could lift AUD and firm short-end yields.
- Inflation path: Another upside surprise in monthly CPI would challenge the hold narrative and revive hike bets.
- Labour data: Renewed labour-market tightness would raise the risk of at least one hike into 2026.
- Curve dynamics: A “hold-for-longer” stance tends to anchor front-end rates; watch for relative-value moves versus the U.S. and New Zealand curves.
Outlook
The base case is a lengthy pause, but risks are skewed toward stickier inflation keeping policy restrictive for longer—or even prompting a late-cycle hike. For now, AUD’s near-term bias hinges on the December communication, with any hawkish nuance likely to be rewarded in a market still adjusting to a no-cuts consensus. Reporting by BPayNews.
FAQ
Will the RBA raise rates in December?
No. A unanimous economist survey expects the RBA to hold the cash rate at 3.60% in December.
Why is the Australian dollar reacting to a prolonged hold?
A sustained hold at elevated levels supports AUD via interest-rate differentials. If markets price out cuts and see a risk of hikes, the currency typically finds support, especially against lower-yielders.
What does the latest inflation data say?
Monthly CPI accelerated to 3.2%, above the RBA’s 2–3% target. This reinforces concerns that inflation is proving sticky, limiting scope for cuts.
How are markets priced into 2026?
Interest-rate futures imply more than a 70% chance of at least one hike by late 2026, reflecting a shift from prior expectations for cuts to a higher-for-longer trajectory.
What are Australia’s big four banks forecasting?
ANZ, CBA and NAB expect an extended hold through 2026. Westpac is the outlier, maintaining a view for cuts in 2026.
What could push the RBA toward a hike?
Persistent upside surprises in inflation, renewed tightness in the labour market, or inflation expectations drifting higher could prompt the RBA to consider raising rates despite the current hold bias.
