Insights 
VT 
Christopher Kent, Assistant Governor of the Reserve Bank of Australia (RBA), addressed the CFA Society Australia Investment Conference 2025. He noted recent financial rate cuts have made conditions less restrictive, placing the cash rate within a wide and uncertain neutral range.
The neutral rate is deemed unreliable for guiding near-term policy, with economic forecasts showing mixed outlooks. The RBA will reassess the economic outlook using incoming data and risks. Concurrently, the Australian Dollar was down 0.17% against the USD, affected by weak September employment data.
Monetary Policy Decisions
The RBA, responsible for setting Australia’s interest rates, influences the AUD through monetary policy decisions made at regular and emergency meetings. Key mandates include maintaining price stability, full employment, and economic prosperity, largely through interest rate adjustments impacting currency strength.
Inflation data can affect currency value by leading central banks to adjust interest rates. Higher rates often attract capital inflows, increasing local currency demand. Economic data like GDP and employment figures also impact AUD by shaping the economic perception.
Quantitative Easing (QE) involves the RBA boosting money flow by purchasing assets, weakening the AUD. In contrast, Quantitative Tightening (QT), initiated during economic recovery, stops asset purchases, bolstering the AUD.
The latest comments suggest the Reserve Bank of Australia is now on hold after the rate cuts we saw earlier in 2025. With the cash rate considered to be in a neutral setting, the central bank is signalling that it is comfortable observing for now. This means we should not expect any further policy changes unless the economic data surprises significantly.
Current Economic Data
This neutral stance is supported by the conflicting economic data we have received recently. While the weak September employment report, which saw the unemployment rate tick up to 4.2%, justifies a pause, the latest quarterly inflation figures from a few weeks ago showed CPI still sticky at 3.1%. This leaves the RBA in a wait-and-see mode, making their future actions highly dependent on the next round of data.
For derivative traders, this outlook suggests a potential decrease in implied volatility for the Australian dollar. With the central bank on the sidelines, the wild swings driven by monetary policy surprises that we saw in 2023 and 2024 are less likely. Selling short-dated options volatility could be a viable strategy, but traders should be prepared for sharp, short-term spikes around key data releases like the next inflation or jobs report.
Given the RBA’s neutral position, the AUD/USD, currently weak around 0.6495, will likely be more influenced by external events in the coming weeks. We believe the direction of US interest rates and the price of key commodities will become the primary drivers. Iron ore prices, for instance, have been struggling to hold gains above $105 per tonne, offering little support for the Aussie dollar right now.
