The Reserve Bank of Australia (RBA) implemented a 25 basis point rate hike in September, raising the cash rate to 4.60%. According to TD Securities Macro Research, this move was characterized as a risk-management decision rather than the initiation of a new tightening cycle [1]. TD Securities expects the RBA to keep the cash rate on hold for the remainder of 2026 and throughout 2027, with no further hikes anticipated this year [1][2].
TD Securities notes that the market interpreted the RBA's statement as hawkish, but their own analysis suggests the central bank did not signal a rapid follow-up hike. The team maintains that if the RBA refrains from hiking in November, a December hike would be a difficult and uncomfortable option for the Bank. While there is a risk the RBA may reconsider hiking at its February 2027 meeting, this is not TD Securities' central view and is not seen as a market positioning opportunity at this time [1].
On the macroeconomic front, the RBA Board acknowledged that consumption, housing, and labor conditions are easing broadly as expected. Capacity pressures remain, but domestic pressures are not seen as overheating [2]. Household spending data for August showed broad-based declines across six of nine categories, with headline spending flat month-on-month and a -0.4% m/m decline excluding transport, despite a 2.3% m/m gain in transport spending [2]. Additionally, ANZ's two-year consumer inflation expectations peaked three weeks ago [2].
TD Securities maintains a negative bias on the Australian Dollar (AUD) relative to the New Zealand Dollar (NZD), expecting AUD underperformance to persist as the RBA remains on hold [2]. Their bias favors front-end cross-market outperformance and continued AUD weakness, particularly against the NZD [2].
CONCLUSION
The RBA's September rate hike is viewed as a risk-management measure, with TD Securities expecting an extended policy hold and no further hikes this year. Easing domestic activity and subdued inflation expectations reinforce the outlook for AUD underperformance, especially versus the NZD. Market participants should anticipate continued AUD weakness as the RBA maintains its cautious stance.