Deutsche Bank stands alone with RBA hold call as 31 of 32 economists tip a hike
The desk anticipates a significant divergence from market expectations ahead of the upcoming Reserve Bank of Australia (RBA) meeting. Per the full note , Deutsche Bank's lone call for a hold on rates contrasts sharply with the consensus that favors a quarter-point hike, likely leading to a downward revision of the Australian dollar. With the current inflation rate at 3.7%, traders have about an 85% chance priced in for a hike, but the hold call suggests reconsidering the broader economic indicators such as rising unemployment and easing inflation pressures.
What the desk is arguing
The desk frames this as a potential catalytic moment for the Australian dollar, which may face downward pressure if the RBA opts for a surprise hold. Deutsche Bank's analysis indicates that focusing on the RBA's own forecasts rather than prevailing market sentiment could lead to a decision that disrupts expectations in the FX space.
Supporting Deutsche Bank's view, the labor market has shown signs of cooling, with the unemployment rate increasing to 4.7%. This backdrop, coupled with a more dovish outlook on oil prices—where Deutsche forecasts Brent crude at $90 by early next year—could further justify the RBA's hesitation to raise rates immediately, as inflation appears to be aligning with estimates rather than exceeding them.
Where it sits in our coverage
Our current consensus target for AUD/USD stands at 0.7000, with a range of 0.6600 to 0.7300. Specific firm targets include: - ING: Mar26 0.7300 - Rabobank: Mar26 0.7095 - Goldman: Mar26 0.6800
This view of a potential hold diverges from the prevailing consensus, where most banks, including JPMorgan and Natixis, expect a hike, suggesting Deutsche Bank's position is on the fringe of market expectations and could lead to significant volatility.
How other firms see it
Many firms, including Goldman and JPMorgan, align with the expectation of a modest hike based on recent inflation data; however, this stands in stark contrast to Deutsche Bank's solitary hold forecast. On the contrary, banks such as ING are more bullish on the AUD, forecasting upward movement against the USD in the near term.
Monitor the AUD/USD pair closely, particularly as it relates to any potential changes in the RBA's stance, which could ripple through other pairs such as NZD/USD, reflecting broader trans-Tasman economic ties and central bank policies.
How firms align with this view
Key takeaways
- 01Deutsche Bank's lone hold call against market consensus highlights potential for significant AUD volatility.
- 02Rising unemployment and stable inflation suggest RBA may delay further rate hikes.
- 03Current market pricing indicates an 85% chance of RBA opting for a hike, creating an asymmetric risk.
Market implications
Trade cautiously around the RBA meeting, particularly noting the potential support level at 0.7000 for AUD/USD. A hold could present an ideal opportunity for short positions in anticipation of a sell-off in the AUD.
Risks to this view
A decisive shift in inflation data or global oil prices could invalidate the hold argument, prompting a sudden shift in RBA policy towards raises, which would bolster the AUD.
AUD/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UBS | Bullish | 0.7300 |
UOB | Bearish | 0.7120 |
MUFG | Bullish | 0.7000 |
With a hike close to fully priced, the asymmetry is clear. A hold, as Deutsche Bank expects, would likely knock the Australian dollar lower and rally short-dated government bonds, while a hike would largely confirm what markets already expect. The Reserve Bank of New Zealand’s surprise hold last week shows that central banks can defy near-unanimous pricing, which may make traders less complacent going into the decision.
The oil call matters too: Deutsche’s view that Brent falls to $90 by early next year contrasts sharply with Goldman Sachs’ new $105 December forecast, so the outlook for fuel-driven inflation, and therefore for the RBA, depends heavily on how the Middle East plays out after the US midterms. --- Earlier: JPMorgan joins hike call for RBA’s November meeting, sees tightening bias persisting RBA set for fifth 2026 hike to 4.85% as banks flag risk of another move in February ING lifts AUD/USD target to 0.71 as it backs a 25bp RBA hike next week RBA set for back-to-back hike after hot CPI, says Natixis’ Garcia Herrero --- On a day built around picking winners, Deutsche Bank has backed the outsider, betting the RBA ignores the crowd and holds rates while the oil outlook clears. Summary: Deutsche Bank’s Phil O’Donoghue is the only one of 32 economists in a Reuters poll forecasting the RBA will hold on Tuesday; the rest, including Australia’s big four banks, expect a quarter-point hike to 4.85% Markets price around an 85% chance of a hike after September-quarter inflation came in at 3.7% O’Donoghue argues inflation is tracking the RBA’s forecasts, unemployment has already risen to 4.7%, and rates are biting He expects a clearer post-midterm outlook for oil by December, with Deutsche forecasting Brent at $90 by early next year He urged the board to reach its own conclusion rather than follow the public “echo chamber”, pointing to the RBNZ’s surprise hold last week Almost every economist and trader expects the Reserve Bank of Australia to raise interest rates on Melbourne Cup Day. Deutsche Bank is betting it won’t, the Australian Financial Review reported.
Of 32 economists surveyed by Reuters, 31 forecast a quarter-point increase on Tuesday that would lift the cash rate to 4.85%, its highest level in nearly two decades and the fifth hike this year. That group includes Australia’s big four banks. Markets price around an 85% chance of an increase, and many traders expect a hike before Christmas if it does not come this week.
The decision is due at 2:30pm Sydney time (0330 GMT, 2230 US Eastern on Monday). The lone dissenter among major forecasters is Phil O’Donoghue, Deutsche Bank’s chief economist for Australia, who expects the board to hold. His case is that markets are reacting to old news.
Inflation picked up to an annual 3.7% in the September quarter, well above the RBA’s target, but O’Donoghue argues that the figure was in line with the central bank’s own forecasts. The RBA has warned since March that prices were running hot and has already raised rates by a full percentage point, taking them to their highest level in 15 years. Unemployment, meanwhile, has risen to 4.7%, earlier than expected.
Sources & References
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