Australia's next inflation report could decide whether the Reserve Bank moves again this year or waits, with the Australian Dollar caught between Westpac's call for a November hike and rivals urging caution
Westpac is holding its ground. The bank still expects the Reserve Bank of Australia to hike rates in November. Goldman Sachs and Rabobank see things differently. They want the RBA to wait. This split has put the Australian Dollar on edge. Every new inflation number now moves AUD/USD. The next Consumer Price Index release could tip the balance.
Recent numbers forced a rethink. Australia's underlying inflation came in softer than markets expected. Bets on a November rate hike dropped fast. Westpac did not change its view. The bank still calls for a hike. Headline inflation hit 4.0% in August. The trimmed mean stayed at 3.6% year-on-year, according to the Australian Bureau of Statistics. Westpac's economists say businesses are passing on higher energy costs. They warn this could push underlying inflation up in the coming months.
Rate expectations diverge
Goldman Sachs and Rabobank are not convinced. Goldman expects the RBA to keep rates steady for a long stretch. They do not see any easing until the second half of 2027. Rabobank warns that more tightening could tip Australia into recession or push up unemployment. Both banks point to signs of restraint. New-home construction inflation is weaker. Market services prices, excluding volatile items, fell 0.4% in a month.
Markets reacted fast. Westpac's 1 October Morning Report showed the odds of a November hike dropped from about 40% to 25% after the latest inflation data. The market is jumpy. Even small surprises move the odds. The RBA's cash rate now stands at 4.60%. The central bank raised it by 25 basis points on 29 September 2026. The RBA said stronger-than-expected inflation and new risks forced its hand, as confirmed in the official RBA statement.
Currency moves and inflation risks
The Australian Dollar has been on a rollercoaster. AUD/USD closed near US$0.6957 on Friday, 2 October. It rose 0.40% that day. September was rough, with a 3.15% loss. The bounce came after a weak US jobs report. That eased pressure for another Federal Reserve hike. The Australian Dollar clawed back some ground. But with fewer RBA hikes expected, one source of support for the currency is gone. AUD/USD is now more exposed to local data shocks.
August's inflation matched Westpac's forecasts. The trimmed mean rose 0.2% for the month and 3.6% for the year. Headline inflation climbed 0.4% monthly and 4.0% annually. The ABS said petrol and electricity prices drove the gap between headline and trimmed mean inflation. Westpac expects a 0.9% trimmed-mean rise for the third quarter. That would be faster than the previous quarter's 0.8%. The next CPI release is set for 28 October. That's the big test. It could decide if the RBA acts in November or waits for more proof.
What's at stake for policy and the dollar
This is not just a debate for economists. Businesses, travelers, and anyone with AUD/USD exposure will feel the outcome. Borrowing costs, purchasing power, and international payments all hang in the balance. If the RBA hikes in November, it would show concern about sticky inflation. That could help the Australian Dollar. If the RBA holds, the currency may stay under pressure. US data could keep driving global risk appetite.
These swings are not unique to Australia. As reported earlier, Rabobank cut its EUR/USD outlook when policy signals diverged and markets shifted. In both cases, local inflation, central-bank caution, and global data are stirring up volatility. Traders must rethink their bets with every new release.
Westpac is sticking to its November hike call. That's true even as inflation softens and market odds fall. The next CPI numbers will test Westpac's view. They will also set the tone for the RBA's next move and the Australian Dollar's path into year-end. One thing is clear. The stakes for AUD/USD are high.
Central banks use the policy rate to steer inflation and the economy. In Australia, the RBA's cash rate sets the benchmark for borrowing costs. When inflation runs hot, central banks like the RBA or the Federal Reserve may raise rates to cool things down. But if they tighten too fast, growth can stall and unemployment can rise. The RBA faces a tough balancing act. Markets are watching every data point. Each decision hits the currency and people's wallets right away.
