AUD/USD outlook: Traders eye RBA tone shift as hawkish risks rise

• RBA expected to hold cash rate at 3.60%, focus on statement tone
• Strong CPI, spending and labour data create hike risk for H1 2026
• AUD/USD trades near 0.6625, technical bias remains bullish

Summary

The data flow points to the risk that the RBA may signal an end to the easing cycle, reinforcing its hawkish tone from November. Inflation remains sticky, demand is firm and labour market slack is waning, all of which argue against further cuts. However, markets have already priced that shift aggressively. If the Bank stops short of going that far, it could set up a classic ‘buy the rumour, sell the fact’ outcome, leaving AUD vulnerable to a knee-jerk pullback before the broader bullish trend reasserts itself.

Hawkish Tone Already Set in November

The Reserve Bank of Australia enters its final meeting of the year with a distinctly hawkish tone already established in November, when the Board warned that “inflation has recently picked up.” That phrase will be the one traders focus on today, as it signals the RBA’s growing discomfort with price pressures that were “materially higher than expected” in the September quarter. At the same time, the Bank acknowledged uncertainty about whether policy remains restrictive, a subtle but important admission that the easing cycle may have run its course.

Source: ABS

Since then, the data has only reinforced those concerns. October’s CPI report showed headline and trimmed mean inflation accelerating further, both above the top of the 2–3% target band, while household spending surged 1.3%, the strongest monthly gain since January 2024. Discretionary categories led the improvement, suggesting demand is not just holding up but strengthening, a dynamic that risks amplifying underlying price pressures.

Labour market conditions have also tightened. Unemployment tumbled to 4.3% from 4.5% as employment surged by 42,200, while underemployment and underutilisation fell alongside youth unemployment. These shifts hint that slack in the economy is being eaten into, raising the risk that wage pressures could reaccelerate, particularly with productivity growth weak and unit labour costs still high.

Policy Options Narrow: Hold or Hike

Against this backdrop, it is highly likely that if the RBA discusses two policy options today, they will be to hold or hike, not hold or cut. It’s likely this will be the first question RBA Governor Michele Bullock is asked at her post-meeting press conference, scheduled to begin an hour after the rates decision drops at 2.30pm AEDT.

Source: Bloomberg

Heading into the December meeting, swaps are fully priced for the RBA’s next hiking cycle to begin by November next year, with around a one-in-four chance of a second 25-point increase also baked in for that meeting. The first move may arrive even sooner, with pricing for a hike at the RBA’s May meeting sitting at 55%, indicating traders marginally favour a move within six months.