AUD continues to rise! Interest rate hike expected to be implemented in 2026, multiple banks optimistic about the market outlook

Robust Domestic Demand and Sticky Inflation Lead to Subtle Shift in Central Bank Stance

Australia’s latest data is changing market expectations for the central bank’s policy. The October household expenditure data released on December 4th showed an extraordinary increase—month-over-month growth of 1.3%, far exceeding the expected 0.6%; annual growth reached 5.6%, significantly surpassing the forecast of 4.6%. This strong domestic demand momentum, coupled with persistent high inflation, is prompting the market to reassess the Reserve Bank of Australia’s easing cycle.

In the same month, the Australian Bureau of Statistics released the October Consumer Price Index (CPI), which rose by 3.8% year-over-year, reaffirming that price pressures have not eased. Under this double data barrage, the yield on Australia’s 3-year government bonds broke through the 4% level, hitting a new high since January of this year.

Currency Market Reacts Sharply, Expectations for Rate Hike Probability Surge

Driven by robust economic data, the Australian dollar (AUD/USD) quickly rose to 0.6615 at the time of writing, reaching a new high in over a month. More notably, the market’s attitude shifted—after the household expenditure data was released, the probability of a rate hike by May 2026 jumped from 18% on Wednesday to 55%, making rate hikes the mainstream consensus.

Citi macroeconomist Abhijit Surya pointed out, “The significant increase in Australian household spending in October confirms that the RBA will not further ease. The real risk is that the central bank may soon face pressure to tighten policy.”

RBA Maintains Steady in December, Rate Hike in 2024 Becomes a Certainty

The Reserve Bank of Australia will announce its latest interest rate decision on December 9th. Although the bank has cut rates three times this year, the market expects it to keep rates steady at 3.6%, supported by both inflation and domestic demand. The real focus shifts to 2026—the question is no longer ‘if’ but ‘when’ the rate hikes will occur.

From the Australian dollar’s perspective, the potential for appreciation driven by rate hike expectations is significant. In comparison, the AUD/TWD exchange rate trend is also worth monitoring as a reference for investors’ diversified allocations.

Multiple Institutions Bullish, AUD to Rise Above 0.70 by 2026

National Australia Bank (NAB) provides a clear forecast: AUD/USD will reach 0.67 by December 2025, then rise to 0.71 by June 2026.

Westpac’s outlook is slightly different, expecting AUD/USD to hit 0.69 in March 2026, further rise to 0.70 in September, and surge above 0.71 before the end of the year.

ING Group remains more cautious, projecting AUD/USD to reach 0.68 in the second quarter of 2026, and then 0.69 by year-end.

Although the details differ among institutions, the overall trend is highly consistent—the appreciation potential for the AUD has opened up. Once the rate hike cycle begins, the attractiveness of the Australian dollar will further increase, driving cross rates like AUD/TWD higher. For investors, 2026 will be a pivotal year for the Australian dollar.