RBA preview: A decisive hike to keep inflation in check
At a Glance
The RBA is poised to enact a hawkish 25 basis point rate hike on September 29, likely pushing the cash rate to 4.6%, in light of ongoing inflationary pressures and a tight labor market. Per the full note from ING, this increase aims to combat sticky core inflation bolstered by rising energy costs and resilient economic performance, particularly evident in the upside surprise in Q2 GDP growth. As the AUD currently trades at 0.6886, this policy shift could lend support to the currency amid challenging external conditions. However, external factors, including a deteriorating global economic environment, may still pose risks to the AUD's strength against its counterparts.
Key Takeaways
- 01RBA expected to hike rate by 25bps on September 29, 2026, to combat persistent inflation.
- 02Strength in labour market and higher energy costs strengthening case for tightening monetary policy.
- 03Current AUD/USD trading at 0.6886 may receive support post-hike.
- 04Consensus target for AUD/USD medians at 0.71 for Dec-26 suggests upper room for appreciation.
Full Analysis
What the desk is arguing
The desk predicts a RBA rate hike of 25 basis points, with the possibility of further tightening if inflation pressures remain elevated. This expectation is underpinned by robust domestic indicators such as low unemployment and stronger-than-expected GDP growth, as noted in the ING report. Furthermore, persistent inflation, particularly in fuel prices following geopolitical tensions, suggests the RBA will emphasize its commitment to controlling price stability.
Tighter monetary policy appears warranted, with a recent estimate indicating that a 10% hike in fuel prices can potentially add over 0.3 percentage points to headline inflation over a short period. The RBA's decision to raise rates reinforces their focus on maintaining price stability and addressing inflation that remains above their target ranges, despite signs of housing market weakness.
Where it sits in our coverage
Our analysis shows a consensus median target for AUD/USD at 0.71 with a range of 0.66 to 0.73 by December 2026. Notable firm targets include: - tmgm: Dec-26 target 0.6900 - socgen: Dec-26 target 0.7120 - westpac: Dec-26 target 0.7200
This stance aligns with the broader market expectations but reflects an optimistic outlook in the face of mixed data, given that the desk's predictions are skewed toward the higher end of the available forecasts.
How other firms see it
Aligned firms share a bullish outlook on the Australian dollar, especially following the anticipated rate hike. Firms such as socgen and westpac position themselves similarly, anticipating potential upward momentum for AUD/USD. Conversely, firms like bofa express a more conservative view with targets at the lower end of the scale, potentially highlighting diverging expectations regarding global risk sentiment.
The trajectory of AUD/USD is intricately linked with the anticipated moves of other central banks, particularly with the US Federal Reserve's rate policy. Similarly, monitoring the BOE could provide insights into broader market reactions to central bank policies and their impact on currency valuation.
Market Implications
Traders should watch for potential support around the 0.7000 level post-RBA decision, as market positioning remains sensitive to monetary policy signals. Global inflation metrics and energy prices will likely drive volatility in the AUD/USD pair.
AUD/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Bank of America | Bullish | 0.7000 |
Scotiabank | Bullish | 0.7500 |
UOB | Bearish | 0.7120 |
From the original
Articles RBA preview: A decisive hike to keep inflation in check Published 10:45 FX Australia Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The RBA is likely to deliver a hawkish 25bp hike on 29 September as persistent inflation pressures, resilient
Related speeches
4 itemsReserve Bank of Australia delivers decisive hike, signals balanced path ahead
The Reserve Bank of Australia's (RBA) recent decision to implement a significant interest rate hike suggests a proactive stance in managing inflationary pressures while balancing economic growth. Per the full note from ING Economics, the RBA's hike signals the bank is prepared to navigate a dual mandate of both controlling prices and supporting employment levels. Analysts note this shift is critical, considering Australia’s inflation rate is nearing historical highs, which per the latest data, has reached approximately 6%, considerably above the RBA's target range of 2-3%. Looking forward, traders should anticipate a cautious yet deliberate approach from the RBA, as indications of future rate hikes remain contingent on economic data and global financial conditions.
Bank consensus builds for near term RBA hike as economists cite sticky inflation
The prevailing sentiment among economists indicates a high likelihood of an RBA rate hike within the year, driven by persistent inflation concerns. Per the full note [source], six out of seven major banks now foresee at least one rate increase, narrowing the debate to the timing of such a move, particularly focusing on the upcoming September and November meetings. This shift translates to expectations of rising bond yields and upward pressure on the Australian dollar as markets react to inflation data and economic indicators leading up to these meetings. With CBA's adjustment to anticipate a hike in November, now at 4.60%, the market's response will be critical, particularly as data releases on employment and GDP come into play ahead of the RBA decisions, making every data point a substantial market signal.