AUD/USD Forecast: Australian Dollar Rises as November RBA Hike Bets Jump
Barclays remains positive on the Australian Dollar as the RBA warns of worsening inflation, with next week’s CPI testing the case for another rate rise.
The Australian Dollar to US Dollar exchange rate was trading at US$0.7031 on Wednesday, up 0.35%, as a warning from Reserve Bank of Australia Deputy Governor Andrew Hauser revived expectations of a November interest-rate increase.
Barclays remains bullish on the Australian Dollar.
Speaking in Sydney, Hauser said: “The inflation outlook looks materially worse than we projected in the August report.”
Barclays’ morning briefing described a sharp change in expectations for the 3 November decision:
“The market took the speech as very hawkish, and pricing for the November meeting has shifted sharply.”
The briefing added: “Markets now price around a 52% probability of a November hike, up 28 percentage points from yesterday.”
That reading left a rise only slightly more likely than a hold, giving the 28 October inflation release scope to move expectations in either direction.
Hauser did not commit to a November increase, acknowledging the difficult choice between restraining inflation and protecting employment.
Hauser’s inflation concern reaches beyond fuel
September’s loss of 39,300 jobs had strengthened the argument for an RBA pause, while unemployment held at 4.7% after an upward revision to August.
Yet Hauser’s concern extends beyond the immediate effect of fuel prices.
He pointed to evidence that a growing share of businesses sees inflation of 3-3.5% as normal, above the RBA’s 2-3% target band.
Hauser said: “We can’t allow expectations to shift away from the target.”
Westpac chief economist Luci Ellis writes: “This is mostly a story about non-labour costs. While the Fair Work Commission did hand down an above-average increase in award wages this year and this was probably passed through to prices in hospitality and other labour-intensive sectors, base wages growth has been moderate for some years.”
“Business surveys point to non-labour cost escalation being the real issue lately.”
Companies that can pass higher costs on to customers have less reason to absorb them through smaller margins or find savings elsewhere.
Ellis writes: “The mechanism to get inflation down then must be simply to weaken demand enough to convince firms that cost-plus will not fly in the market. This is an unpleasant message for many consumers or anyone in an interest-sensitive sector when supply shocks abound.”
Westpac’s economists had already looked past the employment disappointment before Hauser spoke, writing that “we still expect a 25bp rate hike at the November meeting.”
That would take the cash rate to 4.85%, following the RBA’s September increase to 4.60%.
Higher expected returns on Australian assets can attract demand for the currency, provided the outlook does not deteriorate enough to drive investors away.
Services inflation could decide how far rate bets rise
Goldman Sachs sees upside risks to its underlying inflation forecast: “Over the 3Q2026 quarter, we expect trimmed mean CPI to increase 0.95%qoq.”
That measure reduces the influence of unusually large price changes.
Goldman’s economists expect a sizeable fuel contribution to September’s headline increase, but a more restrained monthly rise in market services excluding travel.
They write: “We suspect that part of the sharp rise in July reflected unusually large one-off price resets with the commencement of the new financial year and as higher Award wages came into effect.”
“Looking forward, we expect an ongoing softening in labour market conditions to keep market services inflation contained.”
If that restraint becomes clearer, it could support the case for giving earlier tightening more time to work.
A broader acceleration would be harder to dismiss, particularly after Hauser’s warning about businesses becoming accustomed to inflation above target.
What This Means for AUD/USD
The Australian Dollar’s recovery above US$0.70 leaves Barclays’ positive view facing an immediate test on 28 October. Persistent underlying inflation could draw more investors towards a November hike and support further AUD/USD gains, especially while an increase remains only partly priced.
A softer underlying result would give the weaker jobs figures more weight, exposing some of Wednesday’s gains to a reversal. The risk for buyers is that the RBA sounds concerned but still chooses to wait on 3 November.
Barclays also reported improving global risk appetite as technology earnings eased concerns about the AI trade. That offers a more favourable setting for the Australian Dollar, but renewed equity selling could work against it even if domestic rate expectations stay firm.
