## Rising Calls for Rate Hikes in Australia! The AUD Surges Fiercely, Will the December Central Bank Decision Spark a New Rally?

The Australian dollar has recently performed remarkably. As of December 8, the AUD/USD has risen for the fifth consecutive trading day, quoting at 0.6645, approaching a high not seen in over two months. Meanwhile, the yield on 10-year Australian government bonds has climbed to 4.737%, hitting a two-year high. Behind this rally is the market’s re-pricing of the Australian Central Bank’s policy stance shift.

### The central bank maintains the status quo but signals a hawkish stance

On December 9, the Reserve Bank of Australia (RBA) will announce its new interest rate decision. The market consensus generally expects the central bank to keep rates unchanged at 3.60%. In fact, since the beginning of this year, the RBA has cut rates three times, lowering the policy rate from 4.35% to the current 3.60%.

However, the focus is not solely on a “no cut” decision. Investors are more concerned with the change in the central bank’s wording. RBA Governor Michele Bullock( previously emphasized that the bank is closely monitoring inflation trends and is prepared to act decisively if inflationary pressures heat up. This suggests a possible shift toward a tightening stance—what the market refers to as expectations of Australian rate hikes.

) Rate hikes in 2026 become a market focus

Regarding the timing of Australian rate hikes, there are clear disagreements within the market.

The hawkish camp includes Westpac FX strategist Richard Franulovich and AMP Chief Economist Shane Oliver. They believe Bullock has ample reason to continue signaling a hawkish stance. Shane Oliver even stated that the central bank is likely to declare it will take all necessary measures to bring inflation back to target, opening the door for rate hikes next year. Some major banks’ economists have already begun estimating that the RBA will tighten monetary policy in February next year.

Conversely, the cautious camp believes such expectations are too aggressive. UBS economist George Tharenou said that the central bank should remain cautious, and it is too early to explicitly state that rate hikes will occur at this stage. He expects that rate hikes are more likely to happen before the end of next year, but only if several months of additional inflation data support this view.

Fundamentally, this disagreement stems from differing interpretations of inflation and expenditure data. Persistently high inflation pressures and strong household spending are reasons for the RBA to remain cautious, and they are also the main drivers of rate hike expectations.

### How will Australian rate hikes boost the AUD?

Exchange rate movements are closely related to central bank expectations. Mizuho Securities analyst Vishnu Varathan pointed out that if the RBA indeed adopts a hawkish stance, while the Federal Reserve shifts to a more dovish position, the AUD will receive a significant boost. This mechanism of widening interest rate differentials has been repeatedly tested in the forex market.

Another factor supporting the AUD is its safe-haven attribute. The AUD is often used as a hedge against US asset sell-offs. If global risk appetite declines in the future, demand for the AUD as a “safe asset” could continue to increase.

Additionally, the boom of the commodities supercycle will also support a stronger AUD. As AI infrastructure construction accelerates and global geopolitical competition for resources intensifies, Australia’s position as a major resource exporter will be further emphasized, thereby boosting long-term demand for the AUD.

In summary, the expectations of rate hikes in Australia, widening interest rate differentials, the commodities cycle, and geopolitical factors are working together to drive the AUD higher. The December 9 central bank decision will be a key moment to test these expectations.