RBA set to hike as inflation proves more persistent
The desk anticipates a 25bp rate hike from the Reserve Bank of Australia (RBA) at their upcoming meeting on November 3, driven by persistently high inflation stemming from rising fuel prices and generalized inflationary pressures. Per the full note from ing-think, recent CPI data shows a significant 90bp increase in headline inflation quarter-over-quarter, with annual inflation now standing at 4.3%. This heightened inflation scenario compels the RBA to act sooner rather than opt for a delay until December, leading the desk to forecast a near-term AUD appreciation towards 0.710.
What the desk is arguing
The desk projects that the RBA is likely to deliver a 25bp rate hike in its November 3 meeting, influenced by stronger-than-expected inflation data. The impact of rising fuel costs is compounded by the broader economy, as both goods and services inflation have accelerated, now exceeding 4% annually. This contextual backdrop, coupled with the RBA's commitment to managing inflation, reinforces the desk’s stance on a near-term AUD surge towards 0.710.
Continued inflationary pressures have prompted the RBA to reconsider its timeline for rate hikes, with indications that the path to price stability may necessitate immediate action rather than a gradual approach. As such, the RBA’s strategy has pivoted to focusing sharply on inflation targets, suggesting a hawkish approach moving forward.
Where it sits in our coverage
Current consensus for AUD/USD targets situates at 0.7000 for the December 2026 timeframe, with forecast ranges extending from 0.6600 to 0.7300. Specific firm targets include: - rabobank: Dec-26 target of 0.7200 - nomura: Dec-26 target of 0.7200 - scotiabank: Dec-26 target of 0.7500
The desk's projection of 0.710 aligns closely with the upper bound of the prevailing targets, illustrating a stronger outlook compared to the consensus.
How other firms see it
The bullish view on AUD is echoed by firms like rabobank and nomura, which also project upward moves in AUD/USD. Conversely, firms such as rbc and bofa hold a more cautious stance, suggesting targets closer to 0.6700 for March 2026.
The anticipated RBA action may influence related currency pairs such as AUD/NZD, where shifts in monetary policy could alter competitive dynamics against the New Zealand dollar.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01RBA expected to hike rates by 25bp on November 3.
- 02Strong inflation print at 4.3% YoY reinforces this position.
- 03AUD is projected to strengthen towards 0.710 in the near term.
Market implications
Traders should monitor the 0.710 level closely as an indication of market confidence in the RBA's tightening path. Additionally, the upcoming RBA meeting could serve as a critical catalyst for AUD performance against the backdrop of broader market sentiment.
Risks to this view
A reversal in this view could occur if inflation data underperformance emerges, potentially leading to a reassessment of the RBA's commitment to rate hikes. Global economic shocks or significant movements in commodity prices, particularly oil, could destabilize this trajectory.
AUD/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bullish | 0.7200 |
ING | Bullish | 0.7100 |
MUFG | Bullish | 0.7000 |
Older quick take Quick take Published 10:10 Australia RBA set to hike as inflation proves more persistent Firmer-than-expected inflation data and broader pass-through from higher fuel costs reinforce our view that the RBA will deliver a 25bp rate hike on 3 November rather than wait until December. With more front-end rate support coming for AUD, we expect a move to 0.710 in the near term We expect another hike by the RBA next week At the last policy meeting, the Reserve Bank of Australia remained firmly focused on returning inflation to target and signalled a willingness to tolerate some additional labour market softening to achieve that objective. The combination of a unanimous decision to hike, hawkish messaging and ongoing concern about excess demand led us to pencil in a 25bp hike in 4Q26.
Since then, oil prices have risen further, suggesting headline inflation is likely to stay elevated in the fourth quarter. As a result, we continue to expect the RBA to deliver the 25bp hike at next week's meeting rather than delay it to December. Since the last meeting, Australia has released August and September monthly CPI data, as well as the 3Q inflation report.
All three prints were firm, with an overall 90bp increase in headline inflation from July to September, reinforcing the view that inflation has not yet made sufficient progress towards the RBA's target. Almost all of the 90bp increase in headline CPI inflation of 4.3% YoY in September can be traced to higher transport costs, largely reflecting elevated fuel prices. However, the pass-through has not been confined to transport.
Both goods and services inflation have also picked up, with annual inflation in each now running above 4%, suggesting that higher energy costs are feeding more broadly through the economy and adding to underlying inflation pressures. Core inflation, as a result, picked up pace both on an annual and quarterly basis, remaining well above the RBA's target. In our view, the data should give the RBA greater confidence that underlying inflation is not yet on a sustained downward path, limiting the case for a pause and strengthening the argument for another rate hike.
More support coming for AUD The Australian dollar has had a good run in October, sitting in the half of G10 currencies that have outperformed USD. Higher energy prices and the latest recovery in AI-related sentiment are favouring commodity currencies, but our valuation models show that AUD/USD primarily responds to short-term rate differentials at this stage. We expect a rate hike next week (20bp priced in) to reinforce the fundamental support front-end rates are giving to AUD, which already offers the best volatility-adjusted short-term carry in G10 (chart below).
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Cross-firm research
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AUD/USD spot sits 3.07% below the 24-firm median Dec-26 target of 0.71, with an 0.08 spread separating Citi's bear case from StanChart's bull.
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