The Reserve Bank of Australia (RBA) is on track to leave the Official Cash Rate (OCR) unadjusted at 3.6%, following the conclusion of its December monetary policy meeting on Tuesday.
The decision will be announced at 03:30 GMT, accompanied by the Monetary Policy Statement (MPS). RBA Governor Michele Bullock’s press conference will follow at 04:30 GMT.
The language in the MPS and Bullock’s press conference will likely ramp up volatility around the Australian Dollar (AUD).
Will RBA hint at a hawkish pivot?
Since the November monetary policy meeting, inflation has surprised to the upside and economic growth has regained momentum.
Both indicators justify the expected rate-on-hold decision this week and suggest that the RBA could hint at the likely end to its easing cycle.
Data from the Australian Bureau of Statistics (ABS) showed last Wednesday that real Gross Domestic Product (GDP) in the third quarter climbed by 2.1% from the same period a year earlier, the fastest since mid-2023 and above the RBA’s estimate of trend growth of 2%.
The ABS reported on November 27 that the monthly Consumer Price Index (CPI) in October rose at an annual rate of 3.8%, the highest in ten months and above the market forecasts of 3.6%.
Details of the report suggested the pick-up in inflation has been broad-based, with price pressures in the services sector accelerating. Additionally, annual wage growth held at 3.4%, the level forecast by the RBA to remain at this year.
Following the monthly CPI release, RBA Governor Bullock warned, “If inflation proves more persistent, it would have implications for policy.”
A string of upbeat data prompted money markets to fully price in a rate hike by the end of 2026 last week, according to Refinitiv’s Australian Dollar Interest Rate Probabilities, against expectations of at least one more rate cut early next year seen just a couple of weeks ago.
How will the Reserve Bank of Australia’s decision impact AUD/USD?
The AUD positioning against the US Dollar (USD) suggests that buyers are likely to retain control in the run-up to the RBA policy announcements.
AUD/USD could unleash additional upside if the RBA MPS and Governor Bullock lean more hawkish on the outlook for further easing, hinting at a probable pivot toward tightening.
On the contrary, the Aussie could witness a sharp correction from two-month highs if RBA Governor Bullock refrains from signalling the end to the bank’s easing cycle by sticking to the data-dependent stance.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.
“AUD/USD is hanging close to three-week highs of 0.6650, holding its recent bullish momentum. The 14-day Relative Strength Index (RSI) is sitting just beneath the overbought territory, suggesting that there could be scope for further upside.”
“The Aussie pair could see a fresh leg north toward the September 17 high of 0.6707 on a hawkish pivot by the RBA. The next relevant resistance levels are aligned at the 0.6750 psychological level and the 0.6800 round figure. Conversely, any retracements could test the initial support at the 0.6600 mark, below which additional downside will open toward the December 3 low of 0.6553. The line in the sand for AUD/USD buyers is pegged near 0.6530, the confluence of the 50-day and 100-day Simple Moving Averages (SMA),” Dhwani adds.
Economic Indicator
RBA Interest Rate Decision
The Reserve Bank of Australia (RBA) announces its interest rate decision at the end of its eight scheduled meetings per year. If the RBA is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Australian Dollar (AUD). Likewise, if the RBA has a dovish view on the Australian economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for AUD.
Read more.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Source: https://www.fxstreet.com/news/rba-expected-to-hold-interest-rate-amid-rising-inflation-steady-economic-growth-202512082145
