The Australian dollar's rally remains unstoppable! Persistent high inflation raises questions about when the central bank's easing cycle will end.

**AUD/USD hits new highs, driven by inflation expectations**

In the past week, the Australian dollar performed remarkably well, with the AUD/USD rate reaching 0.6505 on November 26, up 0.6% from the previous day, marking four consecutive days of gains. The key drivers behind this rebound come from two directions: higher-than-expected Australian inflation data and the Federal Reserve still having room to cut rates.

Australia's October CPI increased by 3.8% year-over-year, higher than the market expectation of 3.6% by 0.2%. This data directly dampened market expectations of further rate cuts by the Reserve Bank of Australia. CICC Macro pointed out that the latest inflation figures indicate that inflationary pressures have not eased significantly, and the central bank is unlikely to have further easing space in the short term. Especially if next week's GDP data also confirms capacity constraints, the easing cycle is likely to come to an end.

**Central bank holds steady in December; policy divergence in 2026**

On December 9, the Reserve Bank of Australia will announce its latest interest rate decision. The market consensus is that rates will remain unchanged at 3.60%. However, opinions on the outlook for next year have become notably divided.

UBS analyst Stephen Wu expects that if inflation remains above the RBA's target range, the RBA could start raising rates as early as Q4 2026. Barrenjoey Chief Economist Jo Masters also believes that although the threshold for rate hikes is very high, this possibility is increasing. "The final stages of inflation may require more tightening of monetary policy, and there is no rate cut path visible for next year."

In contrast, ING maintains a relatively moderate stance, expecting the RBA to only implement one more rate cut before holding steady.

**AUD poised to continue rising, among top G-10 currencies**

Market pricing already reflects these expectations. ING analyst Francesco Pesole is optimistic about the AUD's prospects, believing it will become a leader among G-10 currencies in 2026. "By Q2 next year, Australian interest rates could be among the highest in the G-10, which will support the AUD." Additionally, improved trade relations and economic growth prospects provide extra momentum for the currency.

From a broader macro perspective, strong US economic data supports the Fed's December rate cut, further weakening the US dollar. The rise in AUD/USD reflects this pattern: Fed easing + RBA tightening = bullish outlook for the Australian dollar.