The Reserve Bank of Australia shifts expectations to a warming outlook. Can the AUD against the RMB rise on the trend?

**Strong domestic demand breaks rate cut expectations**

Recent Australian economic data have sent strong signals. In October, household spending jumped 1.3% month-on-month, far exceeding market expectations of 0.6%, with a year-on-year increase of 5.6%, significantly higher than the expected 4.6%. The release of this data has completely changed the market's view on the RBA's policy direction.

According to Abhijit Surya, a macroeconomist at Capital Economics, "The strong performance of household spending means the RBA has no room for further rate cuts. More importantly, the central bank may face pressure to tighten policy earlier than expected."

**Persistent inflation pressures drive shift**

Although the RBA has implemented three rate cuts in 2025, inflation has not eased significantly. In October, the Consumer Price Index (CPI) rose 3.8% year-on-year, exceeding market expectations, indicating that price pressures still exist. This has led the market to completely revise its expectations for the central bank's next move.

The previously underestimated rate hike expectations surged sharply after the December data was released. The market's expectation of a rate hike in May 2026 jumped from 18% to 55%, demonstrating a strong consensus on a policy shift by the RBA. The RBA will announce its latest interest rate decision on December 9. While maintaining the current rate at 3.6% has become a consensus, the focus is now on potential rate hikes in 2026.

**Divergence in currency outlook**

The outlook for the AUD/USD exchange rate is bullish, laying a foundation for the appreciation of the AUD against the RMB. National Australia Bank forecasts that the AUD will rise to 0.67 by December 2025 and further climb to 0.71 by June 2026.

Westpac's forecast is more aggressive, expecting the AUD/USD to reach 0.69 in March 2026, 0.70 in September, and surge to 0.71 by the end of the year. Meanwhile, ING's view is more moderate, projecting the AUD/USD to hover around 0.68 in Q2 2026 and rise to 0.69 by year-end.

**Market outlook**

The AUD's upward momentum is driven by expectations of a policy shift by the central bank, supported by strong domestic demand data. As expectations for rate hikes in 2026 intensify, cross-currency pairs like AUD/RMB are also likely to benefit. Investors should closely monitor subsequent signals from the RBA.