We expect the Reserve Bank of Australia to keep its cash rate target unchanged at 3.60% in today’s meeting. Having broadly met its dual mandate, the RBA faces less immediate pressure for aggressive policy adjustment based on the latest data. First, underlying (trimmed mean) inflation was 2.7% YoY in the June quarter, within its official 2-3% target range. However, headline inflation has rebounded to 3% in August from 1.9% in June, pulling core inflation to 2.6% from 2.1%. Second, the RBA assessed that the labour market was close to full employment, paying more attention to the historically low jobless rate of 4.2% rather than the 40.9k jobs shed in August. Third, following the economy’s stronger-than-expected performance in 2Q25, the RBA expects growth to pick up a little further over the year, driven by a sustained recovery in household consumption amid real income growth. Hence, the RBA will likely focus on maintaining inflation within the target range in the long term. Apart from concerns about excess demand in the economy, productivity growth did not pick up amid high growth in unit labour costs.
We have not changed our view for AUD/USD to grind higher to 0.66-0.69 in 2026. The currency pair corrected lower to 0.6250 last Thursday, retracing 61.8% of its five-week rally from 0.64 to the year’s high of 0.67 on the Fed’s rate cut on September 17. The Oz’s overnight rebound of 0.5% to 0.6575 was driven by a weaker USD on fears of a US government shutdown at midnight today. The greenback can expect a relief rebound if the Republicans secure Democratic support for the 60 votes in the US Senate to pass the funding bill for the new fiscal year. On the other hand, a shutdown would delay this Friday’s US monthly jobs report and add fears over the White House’s warnings of widespread layoffs.
Regardless of the shutdown outcome, New York Fed President John Williams has kept the door open for another rate cut on October 29, citing less concern over tariff-led inflation and more worries about the soft labour market. Despite expectations for modestly better JOLTS job opening readings today, the US Conference Board’s consumer confidence index may mirror the disappointing results in the University of Michigan survey. Hence, AUD/USD could become a “buy-on-dip” if RBA Governor Michele Bullock signals high hurdles for rate cuts in November or December.
Quote of the Day
“It is a capital mistake to theorize before one has data.”
Sir Arthur Conan Doyle
September 30 in history
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