The AUD/USD exchange rate has experienced gains this week, a trend ANZ analysts attribute to the Reserve Bank of Australia’s (RBA) recent December meeting. The central bank maintained the cash rate at 3.6 per cent, aligning with market expectations. However, RBA Governor Michele Bullock’s commentary struck a hawkish tone, noting that inflation risks are “tilted to the upside”. Bullock downplayed the necessity for future rate cuts, reinforcing forecasts that the cash rate will likely remain steady through 2026.
The Australian 2-year government bond yield reached a 13-month peak, contributing to widening Australia-US yield differentials, which have now hit multi-year highs. Market pricing currently indicates a full probability of at least one 25 basis point hike by mid-2026. This pricing is buoyed by ongoing domestic growth and persistent inflationary pressures within the Australian economy.
Market focus is now shifting towards Australia’s upcoming November labour force report. The RBA has previously identified tightness in the labour market as a potential upside risk to inflation. Consequently, stronger-than-anticipated wage growth or substantial employment gains could solidify the existing hawkish outlook.
Adding to the positive sentiment surrounding the Australian dollar, China’s November trade figures revealed a 5.9 per cent year-on-year increase in exports, a significant rebound from October’s 1.1 per cent decline. Given Australia’s economic reliance on Chinese demand, this data provides additional support for the Aussie’s upward trajectory.
