RBA set to hold rates as markets await signs of an end to easing cycle | FXStreet

The Reserve Bank of Australia (RBA) is on track to leave the Official Cash Rate (OCR) unadjusted at 3.6%, following the conclusion of its December monetary policy meeting on Tuesday.

The decision will be announced at 03:30 GMT, accompanied by the Monetary Policy Statement (MPS). RBA Governor Michele Bullock’s press conference will follow at 04:30 GMT.

The language in the MPS and Bullock’s press conference will likely ramp up volatility around the Australian Dollar (AUD).

Will RBA hint at a hawkish pivot?

Since the November monetary policy meeting, inflation has surprised to the upside and economic growth has regained momentum.

Both indicators justify the expected rate-on-hold decision this week and suggest that the RBA could hint at the likely end to its easing cycle.

Data from the Australian Bureau of Statistics (ABS) showed last Wednesday that real Gross Domestic Product (GDP) in the third quarter climbed by 2.1% from the same period a year earlier, the fastest since mid-2023 and above the RBA’s estimate of trend growth of 2%.

The ABS reported on November 27 that the monthly Consumer Price Index (CPI) in October rose at an annual rate of 3.8%, the highest in ten months and above the market forecasts of 3.6%.

Details of the report suggested the pick-up in inflation has been broad-based, with price pressures in the services sector accelerating. Additionally, annual wage growth held at 3.4%, the level forecast by the RBA to remain at this year.

Following the monthly CPI release, RBA Governor Bullock warned, “If inflation proves more persistent, it would have implications for policy.”

A string of upbeat data prompted money markets to fully price in a rate hike by the end of 2026 last week, according to Refinitiv’s Australian Dollar Interest Rate Probabilities, against expectations of at least one more rate cut early next year seen just a couple of weeks ago.

How will the Reserve Bank of Australia’s decision impact AUD/USD?

The AUD positioning against the US Dollar (USD) suggests that buyers are likely to retain control in the run-up to the RBA policy announcements.

AUD/USD could unleash additional upside if the RBA MPS and Governor Bullock lean more hawkish on the outlook for further easing, hinting at a probable pivot toward tightening.

On the contrary, the Aussie could witness a sharp correction from two-month highs if RBA Governor Bullock refrains from signalling the end to the bank’s easing cycle by sticking to the data-dependent stance.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.

“AUD/USD is hanging close to three-week highs of 0.6650, holding its recent bullish momentum. The 14-day Relative Strength Index (RSI) is sitting just beneath the overbought territory, suggesting that there could be scope for further upside.”

“The Aussie pair could see a fresh leg north toward the September 17 high of 0.6707 on a hawkish pivot by the RBA. The next relevant resistance levels are aligned at the 0.6750 psychological level and the 0.6800 round figure. Conversely, any retracements could test the initial support at the 0.6600 mark, below which additional downside will open toward the December 3 low of 0.6553. The line in the sand for AUD/USD buyers is pegged near 0.6530, the confluence of the 50-day and 100-day Simple Moving Averages (SMA),” Dhwani adds.