RBA preview: A decisive hike to keep inflation in check
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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
A reversal of the RBA's hawkish sentiment could occur if inflation shows signs of easing significantly, or if external economic pressures worsen unexpectedly, leading to a rethink of the tightening trajectory. Additionally, geopolitical developments that negatively impact oil prices could further complicate outlooks.
AUD/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Bank of America | Bullish | 0.7000 |
Scotiabank | Bullish | 0.7500 |
UOB | Bearish | 0.7120 |
All 22 desk targets for AUD/USD
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 labour demand and higher energy costs strengthen the case for keeping policy restrictive. That should offer some support for AUD, which is suffering from a deterioration in the external environment but still offers solid fundamentals Deepali Bhargava and Francesco Pesole Governor of the Reserve Bank of Australia, Michele Bullock. We expect a 25bp hike next Tuesday to offer some support for the AUD The RBA is set to lean hawkish We expect the Reserve Bank of Australia to deliver a decisive 25bp rate hike in the cash rate to 4.6% on 29 September, reflecting an economy that continues to run hot across multiple fronts.
Labour market conditions remain tight, second-quarter GDP growth surprised to the upside, and recent inflation readings have come in stronger than expected. While the housing market has shown signs of cooling, we expect the RBA to emphasise that inflation risks remain tilted to the upside and that further vigilance is required to ensure price pressures return sustainably to target. Core inflation is turning out to be stickier Source: CEIC, ING Research "> Source: CEIC, ING Research What has strengthened the case for a hike Inflation risks remain tilted to the upside following the escalation in the US-Iran conflict.
While Australia is a major exporter of LNG and thermal coal, it remains heavily reliant on imported oil products such as diesel, petrol and jet fuel. Higher global oil prices have already lifted domestic fuel costs, raising input costs across transport, mining and agriculture and adding to food price pressures. The RBA estimates that a 10% increase in fuel prices could add more than 0.3ppt to headline inflation over one to two quarters, with indirect effects from production and transport costs contributing a further 0.2-0.25ppt.
Even if crude oil prices moderate as we expect, domestic fuel prices are likely to remain relatively sticky, keeping inflation risks skewed to the upside. Trimmed mean inflation remains stubbornly high , likely holding at 3.6% year-on-year in August for a third consecutive month. This suggests core inflation accelerated in 3Q rather than eased, challenging the RBA's expectation that trimmed mean inflation would slow to 3.3% by year-end.
With renewed supply-side disruptions and higher fuel and food prices, the path back to target appears increasingly difficult. Labour demand remains strong. Despite the rise in the unemployment rate to 4.6%, labour market conditions remain tight.
Full-time employment growth strengthened in both July and August, while three-month average job creation accelerated to 34k, the strongest pace since the onset of the US-Iran conflict in February. The participation rate also rose to a record-high 67.1%, suggesting labour supply is increasing but is still being absorbed by robust hiring demand. The combination of strong employment growth and elevated participation points to continued labour market resilience and raises the risk that wage and underlying inflation pressures remain persistent.
Labour market remains resilient Source: CEIC, ING Research "> Source: CEIC, ING Research RBA to help AUD weather turmoil The Australian dollar has had a rough week, hit by poor risk sentiment and the global bond selloff. Our short-term fair value model (chart below) indicates AUD/USD is now undervalued beyond the 1.5 standard deviation band, suggesting a higher bar for further depreciation. AUD/USD decline looks overdone Source: ING, Refinitiv "> Source: ING, Refinitiv Clearly, the USD leg of the story is the big question mark.
An October hike by the Federal Reserve could keep USD well in demand and delay any AUD/USD recovery further. But if we are right in expecting the next Fed hike only in December, we think AUD can top the G10 scorecard in a USD correction. That’s because AUD fundamentals remain strong and should improve further with a September rate hike by the RBA.
Incidentally, there is less room for a dovish repricing in the AUD curve compared to the USD curve. Markets are pricing in 22bp for the RBA next week, and another 40bp after that, spread over the next nine months. The Fed funds futures curve currently embeds 90bp by July 2027.
As we currently forecast only one hike by both the RBA (next week) and the Fed (December), the rate differential should turn more positive for AUD/USD. We are revising our year-end target for AUD/USD from 0.73 to 0.72 . In the very near term, a test of sub-0.700 levels is the risk, but we think an RBA hike can prevent a retest of the roughly 0.690 June lows.
Monetary Policy Inflation AUD Asia Pacific Asia Markets Asia Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Deepali Bhargava Regional Head of Research, Asia-Pacific Deepali Bhargava joined ING in 2024 and is Head of Research and Chief Economist Asia-Pacific.
She has over 19 years of work experience as a macro specialist covering rates, FX and equity markets… Francesco Pesole FX Strategist Francesco is an FX Strategist and has been with the firm since May 2019. His main focus is on the G10 space and, in particular, on European and commodity currencies. He began his career at Credit… In this article The RBA is set to lean hawkish What has strengthened the case for a hike RBA to help AUD weather turmoil
Sources & References
How we cover this story
Cross-firm research
AUD/USD Consensus Check: Spot at 0.7030, Dec-26 Target 0.71 — Week of September 25, 2026
AUD/USD trades at 0.7030, roughly 1% below the 24-firm Dec-26 median of 0.71, with an 8-cent spread separating the most and least bullish desks.
AUD/USD Consensus Check: Spot at 0.7012, Dec-26 Median 0.71 — Week of September 24, 2026
AUD/USD trades at 0.7012, roughly 1.24% below the 24-firm Dec-26 median of 0.71, with an unusually wide 0.08 dispersion separating Scotiabank's 0.75 from Citi's 0.67.
AUD/USD Dec-2026: Consensus at 0.71, but an 0.08 range splits the pack
AUD/USD trades at 0.7033, roughly 0.94% below the 24-firm Dec-2026 median of 0.71, with an 0.08 spread separating Scotiabank's 0.75 from Citi's 0.67.