AUD/USD Outlook: Hot CPI Dampens RBA Cut Hopes, Hawkish Risks Rise
By David Scutt, Market Analyst
Published: November 26, 2025, 3:03 AM
Australia’s latest inflation data has thrown a cold shower on expectations for near-term Reserve Bank of Australia (RBA) rate cuts, raising the possibility of a hawkish policy pivot instead. This shift in sentiment is reflected in both economic fundamentals and market pricing, signaling potential upside momentum for the AUD/USD currency pair if global conditions remain supportive.
Inflation Surprise Fuels Hawkish Outlook
The first full monthly Consumer Price Index (CPI) release from Australia arrived hotter than anticipated. Headline inflation rose to an annual rate of 3.8%, exceeding the forecast of 3.6%. Even more significant, the trimmed mean CPI—an inflation measure that the RBA closely monitors—jumped to 3.3%, above the predicted 3.0%. Both metrics not only breach the RBA’s 2-3% target range but also suggest underlying inflation pressures have stalled in their recent downward trajectory.
Given that the RBA anchors its inflation framework around a midpoint target of 2.5%, this persistent elevation complicates arguments for policy easing. The central bank’s inflation mandate hinges on the assumption that underlying inflation leads headline figures. The latest data undermines this by showing firming rather than easing core pressures, implying that the bank may need to maintain or even tighten monetary conditions.
Housing and Services Inflation Drive Persistence
The inflation composition proves particularly concerning. Housing inflation, which carries the highest weighting in the CPI basket and is highly sensitive to economic conditions, strengthened further. Rents climbed 4.2% over the year, up from 3.8% in September, factoring in smaller offsets from Commonwealth Rent Assistance compared to last year. Excluding these adjustments, rents would have increased by 4.5%, underscoring tight rental market conditions. New dwelling prices also rose 1.7%, while electricity costs surged, highlighting ongoing cost pressures in essential services.
Services inflation is similarly stubborn, running at 3.9%, with non-tradables inflation hitting 4.8%. These segments are largely influenced by domestic factors rather than international dynamics, indicating widespread price stickiness across the economy. Such entrenched price pressures make it challenging to achieve and sustain the RBA’s inflation targets, especially amid subdued economic growth.
It is important to note this release represents the first monthly CPI report in Australia, introducing some uncertainty around its signal. However, it aligns with strength seen in the Q3 quarterly inflation report, reinforcing the view that inflationary pressures are indeed entrenched. For market participants hoping for rate cuts, the data signals that the RBA’s fight against inflation is far from over.
Market Pricing Signals Hawkish Shift
Market pricing has quickly reflected the inflation surprise, with interest rate swaps indicating a maximum of just 11 basis points of easing by May 2026. There is now even a small probability that the next move in the cash rate could be upward over the coming six months—a stark contrast to just months ago when the cash rate was widely expected to bottom below 3%.
The residual pricing for rate cuts now appears more like insurance against unforeseen negative shocks—such as a sharp rise in unemployment or a global downturn—rather than a firm conviction that easing is imminent. Given inflation running hot and underlying pressures persistent, near-term rate cuts seem unlikely barring a severe labor market deterioration or major external shocks. This effectively marks the end of the RBA’s easing cycle for now.
AUD/USD Poised for Upside Potential
Following the inflation print, AUD/USD modestly rebounded from below its 200-day moving average (DMA), although gains were somewhat capped, possibly due to strength in the New Zealand dollar after the Reserve Bank of New Zealand (RBNZ) adopted a neutral policy at its November meeting. This dynamic has exerted pressure on AUD/NZD and limited the Australian dollar’s advance.
Technical indicators, however, point to a favorable setup for AUD/USD. The pair appears set to test resistance near 0.6520—a level that has acted as both support and resistance in recent months. A clean break above this level could open the way to climb towards the 50DMA and challenge the September downtrend line. Further upside targets include 0.6625, 0.6660, and potentially 0.6700. On the downside, support lies at the 200DMA and 0.6419 if a reversal takes hold.
Momentum indicators such as the 14-day Relative Strength Index (RSI) and MACD suggest that dominant bearish pressure is fading, though the trend is not yet decisively bullish. This hints that sellers are losing grip on price direction, paving the way for potential gains.
Outlook
With the RBA’s easing cycle likely concluded and similar hawkish sentiment emerging around the RBNZ, attention now turns to global developments. The market pricing of Federal Reserve rate cuts continues to climb, suggesting that AUD/USD and NZD/USD could benefit unless a significant risk-off event unfolds. Overall, a new phase may be beginning for the Australian dollar, supported by inflation resilience and shifting central bank narratives.
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