The Reserve Bank of Australia may initiate an interest rate hike cycle in 2026, strengthening the Australian dollar and putting pressure on the RMB/AUD exchange rate.

Strong Domestic Demand Reverses Rate Cut Expectations

Australian household expenditure data sends a strong signal. In October, household spending increased by 1.3% month-on-month, far exceeding the market expectation of 0.6%; year-on-year growth was 5.6%, also higher than the earlier market forecast of 4.4%. This data indicates that Australian consumer activity remains robust, and the economy’s intrinsic momentum is still strong.

As domestic demand outperforms expectations, market perceptions of the Reserve Bank of Australia’s policy path have undergone a fundamental shift. The widely anticipated room for further rate cuts is shrinking, replaced by a re-pricing of rate hike prospects.

Inflationary Pressure Limits Easing Space

In October, the Consumer Price Index (CPI) rose by 3.8% year-on-year, again surpassing market expectations, indicating persistent inflation stickiness. This data, combined with strong household spending, puts the Reserve Bank of Australia in a dilemma: economic activity and price pressures coexist.

Analysts at Capital Economics point out that the accelerated expansion of household spending fully demonstrates that the Reserve Bank of Australia has no room for further easing. More importantly, there is a risk that policy tightening could occur more rapidly.

Market Rate Hike Bets Surge Significantly

On December 4, the yield on the 3-year Australian government bond broke through 4%, reaching the highest level since January this year. This yield movement reflects market pricing for a higher interest rate environment.

The shift in rate hike expectations is also evident in the currency markets: the probability of a rate hike in May 2026 jumped from 18% to 55%, nearly tripling. This indicates a significant increase in market confidence regarding the RBA’s policy shift. The Reserve Bank of Australia is expected to announce its latest rate decision on December 9, likely maintaining the policy rate at 3.6%.

Australian Dollar Uptrend May Continue, RMB Against AUD Faces Pressure

National Australia Bank (NAB) forecasts that the AUD/USD exchange rate could reach 0.67 by December 2025 and rise to 0.71 by June 2026. Westpac Bank expects the AUD/USD to reach 0.69 in March 2026, further rising to 0.70 in September, and touching 0.71 by the end of the year. ING Group is more cautious, expecting the AUD/USD to reach 0.68 in Q2 2026 and 0.69 by the end of the year.

The systemic appreciation of the Australian dollar also exerts indirect pressure on the RMB/AUD exchange rate. When the AUD strengthens against the USD, the RMB/AUD rate may also face adjustment pressures. Investors should pay attention to the transmission mechanisms between these two major currencies.

The combination of the rate hike cycle and the Australian dollar’s upward trend will further enhance the attractiveness of Australian assets, with profound implications for regional currency dynamics and cross-border investment decisions.