The Reserve Bank of Australia meets this week and then has a long holiday until February 2026, with expectations of a hold locked in almost completely, which has sent the Pacific Peso higher in recent weeks:
After finding a base around the 65 handle, with a brief dip below on some wonky US reports, and the absence of any US labour prints due to the US government shutdown and planned incompetence in the Trump regime, the Aussie has put on over 200 pips on expectations that the RBA has to shift gears going into 2026.
The problem as outlined by Luci Ellis at Westpac is that this is the only gearshift the RBA has—hitting consumers (read: mortgage holders) over the head with interest rate rises, although Westpac still reckons cuts are on the agenda for next year:
The Q3 National Accounts confirmed private sector demand is finally gaining traction. Meanwhile, the first full monthly CPI printed at 3.8%yr, surprising many to the upside, but not us. Recently, the categories with the strongest increases have been concentrated in areas where government policies largely determine prices. Nothing about this situation will change this month, so we expect the RBA to remain on hold at its December meeting.
If our view on supply capacity proves correct, inflation should ease through 2026, creating scope for rate cuts in May and August next year.