Australian Dollar: RBA hike risks linger – OCBC

OCBC FX Strategist Sim Moh Siong and Christopher Wong note that stronger Australian Consumer Price Index (CPI) and resilient household spending have revived expectations of another Reserve Bank of Australia (RBA) hike, helping AUD/USD retest resistance near 0.7180–0.7200. They remain constructive on the Australian Dollar (AUD) over the next one to two quarters, but expect gains to fade as inflation moves towards target and RBA shifts away from restrictive policy.

Supportive data but medium-term pullback

"Our base case remains that the RBA has reached the end of its tightening cycle. However, a stronger-than-expected CPI print and resilient household spending have kept the risk of another rate hike alive."

"Following these releases, markets fully priced an additional 25bp hike by end-2026, up from around a 55% probability previously. This repricing has helped AUD/USD retest resistance in the 0.7180-0.7200 range."

"We remain constructive on AUD over the next one to two quarters, supported by its attractive carry and the prospect of further Chinese policy stimulus. While the RBA is likely done tightening, sticky inflation means another hike cannot be ruled out."

"Over the medium term, however, we expect AUD to give back some of its gains as inflation continues to move towards target and the RBA gradually shifts away from a restrictive policy stance."

"Stronger inflation and resilient spending have revived expectations of another RBA hike, supporting AUD. While we remain bullish over the next one to two quarters, easing inflation should eventually shift the RBA away from restrictive policy and cap gains."