FX strategists at Westpac still expect a November RBA hike, but Goldman Sachs and Rabobank favour patience, leaving AUD/USD sensitive to the next inflation report.
Australia’s softer-than-expected underlying inflation has weakened market bets on another November interest-rate rise without shifting Westpac’s forecast, exposing a disagreement that matters for the Australian Dollar.
Australian Dollar to Dollar (AUD/USD): 0.695707 (+0.40%)
Euro to Australian Dollar (EUR/AUD): 1.617382 (-0.37%)
August’s trimmed-mean inflation of 0.2% on the month and 3.6% annually matched Westpac’s expectations and remains consistent with its forecast for a 0.9% quarterly rise in the third quarter.
Goldman Sachs expects an extended pause, while Rabobank believes any further tightening is more likely to wait until early 2027.
AUD/USD closed Friday, 2 October, near US$0.6957, up 0.40% on the day, after losing 3.15% in September.
The recovery accompanied a broader Dollar decline following the weaker-than-expected US jobs report, which reduced the immediate pressure for another Federal Reserve hike.
Markets cut November odds, but Westpac holds its call
Westpac’s 1 October Morning Report recorded a clear change in Australian rate expectations after the CPI release.
“Following a slight downside surprise on inflation figures yesterday, near-term pricing for the RBA has recalibrated, with a follow-up rate hike in November now seen as a circa 25% chance versus a circa 40% chance previously.”
Those are the report’s dated market probabilities, rather than Westpac’s own forecast.
Its economists saw little reason to alter their inflation projections.
“In Australia, the August CPI was spot on Westpac’s forecast, with headline inflation up 0.4%mth/4.0%yr and trimmed mean inflation up 0.2%mth/3.6%yr, though the latter was slightly below market expectations.”
The softer surprise should not be confused with falling annual headline inflation, which rose to 4.0% from July’s 3.5%, while the annual trimmed mean was unchanged.
In its analysis of the latest CPI figures, Westpac analysts retained its November hike call, warning that businesses passing on higher energy costs posed upside risks to underlying inflation later this year.
Its 0.9% third-quarter trimmed-mean forecast would represent an acceleration from 0.8% in the second quarter.
How much restraint is already in place?
The RBA’s September increase took the cash rate to 4.60%, following a cumulative percentage point of tightening during 2026.
The disagreement centres on whether those increases need more time to restrain demand or whether persistent inflation requires another move in November.
Goldman’s assessment after the September decision favoured waiting.
“Our base case is that the RBA holds policy for an extended period until a gradual easing cycle commences from 2H2027.”
That means cuts starting in the second half of next year, although Goldman still regarded further tightening as a material risk, including in November if inflation surprised higher.
Rabobank’s October outlook gives greater weight to the danger of excessive restraint.
“While we do not rule out the possibility of further rate hikes, we think the RBA is going to be feeling its way and will be careful that any further tightening does not tip the economy into recession or cause a disorderly spike in the unemployment rate.”
The bank highlighted weaker new-home construction inflation and a 0.4% monthly fall in market services prices excluding volatile items.
“Overall, we believe that the August inflation data supports our view that the RBA will not be in a rush to raise the cash rate in November and that any further lift in the cash rate is likely to be delayed until early next year.”
For AUD/USD, fewer expected Australian hikes remove one potential source of yield support, although Friday’s rally shows how weaker US data can offset that pressure.
The next Australian CPI release on 28 October will include September-quarter figures, allowing investors to test Westpac’s 0.9% forecast before the November decision.
