The Reserve Bank of Australia (RBA) is expected to maintain its cash rate at 3.60% through 2026, according to a Reuters poll. All 38 economists surveyed anticipate the RBA will keep rates steady at the conclusion of its meeting on 9 December.
The poll reflects a shift in economic outlook, as previous expectations leaned towards rate cuts. In November, over 60% of participants foresaw rate reductions by mid-2024, whereas in the latest poll, under a third do. Among surveyed economists with forecasts to 2026, 19 of 33 expect the rate to remain at 3.60%, 10 anticipate at least one cut, and four foresee a rate increase.
RBA Monetary Policy Tools
The RBA influences the Australian Dollar (AUD) by setting interest rates and implementing monetary policy. The central bank uses tools such as quantitative easing and tightening to manage these rates and maintain economic stability. Economic health indicators, like GDP and employment data, can impact AUD value. Quantitative easing (QE) and tightening (QT) affect currency by altering liquidity, with QE generally weakening the AUD and QT having the opposite effect.
As of the current market situation, the AUD/USD pair had increased by 0.01% to 0.6615.
Given the strong consensus that the Reserve Bank of Australia will keep the cash rate at 3.60%, we should expect lower volatility in the weeks ahead. This view marks a significant change from last month, when many of us were positioned for potential rate cuts. The upcoming RBA meeting on December 9th is now widely seen as an event that will simply confirm this new, stable outlook.
This expectation for a long pause is supported by recent data, which shows a resilient economy. The latest monthly CPI indicator showed inflation holding at 3.5%, still stubbornly above the RBA’s 2-3% target band. We’ve also seen the unemployment rate remain low at 4.1%, giving the central bank little reason to consider cutting rates any time soon.
Implications for Traders
For derivatives traders, this suggests implied volatility on Australian dollar options should continue to decline. This environment makes selling volatility an attractive strategy, such as using short strangles or straddles on the AUD/USD pair. These positions would profit if the currency remains in a relatively tight range, which is likely without any interest rate surprises.
Looking globally, this RBA stance contrasts with central banks like the U.S. Federal Reserve, where discussions of rate cuts for mid-2026 are growing louder. This policy divergence should offer support for the Australian dollar. We could see a renewed interest in the carry trade, where traders borrow in currencies with lower interest rates to invest in the higher-yielding Aussie.
With AUD/USD currently trading near 0.6615, range-trading strategies seem most appropriate. We can look to buy the Aussie on dips, as the favorable interest rate differential should provide a floor for the currency. However, without any prospect of a rate hike, significant upward momentum past recent highs appears unlikely in the coming weeks.
