The Australian dollar continues its upward momentum! Inflation data exceeds expectations, is the central bank's easing cycle really coming to an end?

## Exchange rates keep rising, market buzzes about the end of the rate cut cycle

Since late November, the AUD/USD exchange rate has performed remarkably. As of the 26th, the AUD/USD quote was 0.6505, up 0.6%, marking four consecutive trading days of gains. At the same time, market attention to the AUD/HKD pair has also increased. Behind this rally is closely related to the outlook of the Reserve Bank of Australia’s monetary policy.

Market consensus has shifted—investors generally believe that the RBA’s rate cut phase has ended, while the Federal Reserve still has room to lower rates. Based on this expectation gap, the probability of the Australian dollar continuing its rise into 2026 has significantly increased.

## Inflation arrives late, foreshadowing a policy shift

The key turning point appears on the data front. Australia’s October Consumer Price Index (CPI) increased by 3.8% year-over-year, higher than the market forecast of 3.6%. This figure acts as a warning bell, directly impacting market expectations of central bank easing.

Citi Macro analysis points out that the latest price pressures show little sign of easing, making it difficult for the central bank to cut rates in the short term. More importantly, if the upcoming national economic accounts (GDP) data reflect continued capacity constraints, it will further confirm that the easing cycle has ended.

Meanwhile, strong US economic data supports the Fed’s expectation of a rate cut in December, which further weakens the dollar and provides upward momentum for the Australian dollar.

## December decision remains steady, but 2026 becomes a focus

The RBA’s December decision is about to be announced on the 9th. Most market participants expect interest rates to remain at 3.60%, with no new adjustments.

However, divergence appears in 2026. UBS analyst Stephen Wu believes that the current rising inflation trend is concerning, and the consumer price index is expected to stay above the RBA’s target range. Based on this judgment, UBS forecasts that by the end of 2026, the RBA will face upward pressure on interest rates.

Barrenjoey Chief Economist Jo Masters is more straightforward: “Although the threshold for rate hikes is very high, the central bank is likely to act in 2026. The final stages of inflation may require more tightening of monetary policy, and there is no visible path for rate cuts.”

## Currency rally supported, outlook turns optimistic

These policy expectations are already reflected in the forex market. ING analyst Francesco Pesole stated that the Australian dollar is expected to become the leading G-10 currency by 2026.

“We expect by Q2 2026, the RBA’s interest rate will be among the highest in the G-10, as we only anticipate one more rate cut,” Pesole added. Considering the improving geopolitical trade environment, Australia’s economic growth outlook also appears more optimistic.

Combining the shift in central bank policies, inflation data support, and improvements in the international trade environment, the AUD/HKD and AUD/USD are both expected to receive upward momentum in the medium term.