RBA Takes Center Stage as Markets Expect a Steady Hold and a Firm Tone
The spotlight turns to the Reserve Bank of Australia as it prepares to deliver its final interest rate decision of the year. Markets are almost certain that the central bank will keep the cash rate unchanged at 3.60%. There are no new economic projections scheduled for this meeting, which means traders will focus entirely on how the RBA frames its guidance and how Governor Michele Bullock interprets the latest economic signals.
Governor Bullock has already set a cautious tone after warning last week about rising inflation and the possible policy consequences that may follow. Her remarks suggested a willingness to act more aggressively if needed. This firm stance is visible in market pricing, where expectations for interest rate cuts have disappeared and have been replaced with growing confidence in future hikes as early as the middle of 2026. This shift came after inflation in the September quarter ran hotter than expected and created renewed concern that price pressures remain sticky.
The RBA’s warning that inflation has recently picked up will be the key phrase traders revisit today. It reflects the central bank’s growing discomfort, especially after the October CPI report showed both headline and trimmed mean inflation climbing above the upper end of the target band. Household spending also jumped 1.3%, the strongest increase since January 2024, driven mostly by non essential purchases. This suggests that consumers are still willing to spend, which makes it harder for inflation to cool.
The labour market adds another layer of pressure. The unemployment rate dropped to 4.3%, supported by a surge in jobs, while underemployment and youth unemployment also declined. These developments point to a labour market that is tightening again. A tighter job market increases the risk of stronger wage growth at a time when productivity remains weak and labour costs remain high.
With these conditions, the RBA is likely weighing only two choices, which are to hold or to hike. A cut is no longer part of the discussion. Traders will pay close attention to the language used in the policy statement, especially the final paragraph which often hints at the direction of future policy. Any change in tone is more likely to lean firm rather than soft. It is also worth remembering that Governor Bullock often sounds more hawkish in her public remarks compared to the more balanced tone of the Board drafted statement, so market volatility may rise during the period between the decision and her press conference.
Despite the hawkish outlook, some analysts worry that market expectations may have gone beyond what the RBA is willing to confirm. This raises the risk of a buy the rumour and sell the fact reaction. If the central bank does not sound as aggressive as traders expect, the Australian Dollar could weaken in the short term, even if the cash rate is held steady.
The aussie has already eased against the dollar ahead of the announcement. Markets expect the RBA to keep rates unchanged through the near term but have fully priced a hike by August 2026, with half the market expecting the first increase as early as June.
While the RBA is the main event today for Asia Pacific traders, markets are also watching developments in the United States, particularly the October JOLTS Job Openings report. This data offers insight into how strong the job market remains, and the median forecast sits near 7.15M openings which is slightly below the previous month. However, even if the data comes in weaker, it is unlikely to influence the Federal Reserve decision set for tomorrow.
The Fed is widely expected to cut interest rates by 25bp, and it rarely moves against what the market has already priced in. A significantly lower than expected JOLTS number could pull the dollar lower for a short time, while a much stronger reading could lift it briefly. Still, these reactions would likely be temporary since the overall direction of Fed policy is already well understood. The market will ultimately shift its attention to the updated projections and the comments from Chair Jerome Powell.
Analysis by Coach Angel
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Disclaimer: Investing is risky. Investors should study the information before making investment decisions.
