The impact of Australia's interest rate hike becomes evident, with the economic signals behind the Australian dollar's repeated gains

The latest Australian economic data sends a clear signal: the door to an interest rate hike cycle may soon open. Recently, the sustained strength of the AUD against the USD reflects the market’s early digestion of this outlook.

Household Spending Data as a Key Turning Point

In October, Australian household spending increased by 1.3% month-on-month, far exceeding the expected 0.6%, with a year-on-year growth of 5.6%, surpassing the forecast of 4.6%. This set of data is much stronger than market expectations, indicating that domestic consumption demand in Australia remains robust.

Buoyed by this, the yield on 3-year Australian government bonds broke through 4%, reaching a new high since January this year. Meanwhile, the AUD/USD exchange rate also rebounded, fully reflecting market optimism about Australia’s economic outlook.

Inflation Pressure and Central Bank Policy Direction

Behind all this, inflation remains a core concern. Australia’s Consumer Price Index (CPI) for October rose by 3.8% year-on-year, exceeding market expectations, indicating that inflationary pressures have not significantly eased.

The combination of sustained strong domestic demand and high prices is changing market perceptions of the Reserve Bank of Australia’s policy path. Economists believe these data are enough to dispel market expectations of continued easing by the central bank. The RBA may not only keep current policies unchanged but could also be forced to tighten policy earlier.

Market Rate Hike Bets Surge Significantly

The RBA is set to announce its latest interest rate decision on December 9. Although there have been three rate cuts this year, in the current inflation environment, the market expects the RBA to hold the rate steady at 3.6%.

More notably, bets on a rate hike in 2026 have surged. After the household spending data was released, traders’ probability of a rate increase in May 2026 jumped from 18% on Wednesday to 55%, indicating a considerable consensus among investors that the RBA’s policy stance is shifting.

Multiple Institutions Forecast AUD Appreciation

Regarding the future trend of AUD/USD, major financial institutions generally hold a positive outlook:

NAB (National Australia Bank) expects the AUD/USD to reach 0.67 by December 2025, and then rise to 0.71 by June 2026.

Westpac forecasts that AUD/USD will hit 0.69 in March 2026, rise to 0.70 in September, and further increase to 0.71 by the end of the year.

ING (Dutch International Group) has a more moderate forecast, expecting AUD/USD to rise to 0.68 in the second quarter of 2026, and reach 0.69 by year-end.

These institutions’ consensus indicates that under the influence of rate hikes, the AUD still has room to appreciate. Improving data and policy outlooks are laying the foundation for the AUD’s repeated gains.