Insights 
VT 
The Reserve Bank of Australia’s Assistant Governor Sarah Hunter addressed the 2025 AFIA Conference, discussing the current economic situation. She mentioned that they are nearing their inflation target, which is a positive development.
Risks And Economic Outlook
Risks concerning the economic outlook are balanced, indicating a stable environment moving forward. The impact of monetary policy is felt with a delay, necessitating a forward-looking approach to decision-making.
Consumption is showing signs of improvement, with the economic position beginning to change. Household spending has seen a slight increase, reflecting better economic conditions.
Based on these comments, we should view the Reserve Bank of Australia as being firmly on hold, with the tightening cycle that dominated 2024 and early 2025 now over. The main takeaway is that the odds of another rate hike are extremely low. This shifts our focus from pricing in further hikes to anticipating the timing of the first cut.
The data supports this view, creating a balanced tension for the market. We saw the latest quarterly CPI print from the Australian Bureau of Statistics in August 2025 come in at 3.1%, just above the target band and a significant drop from the cycle peak. However, retail sales data also showed a surprising 0.4% lift last month, backing the idea that household spending is resilient despite the current 4.85% cash rate.
Implications For Interest Rate Futures
For interest rate futures, this means the front end of the curve should remain anchored. We’ve seen the market already respond, with pricing for the November 2025 meeting implying less than a 10% chance of a rate change. The primary trade will be positioning for the timing of cuts in 2026, which these consumption figures may push further out.
This balanced outlook suggests implied volatility on short-term interest rate options should fall. With the central bank signalling a steady hand and no immediate catalysts for a move, selling volatility through strategies like short straddles on three-year bond futures could be advantageous. The period of sharp, unexpected rate moves we experienced in 2024 appears to be behind us for now.
For the Australian dollar, these dynamics present a mixed picture, likely leading to range-bound trading. A peak in the cash rate limits the currency’s upside potential, particularly if other central banks remain hawkish. However, the stronger-than-expected domestic economy provides a supportive floor, preventing a sharp decline.
