The Australian dollar slipped to about US$0.7017 on Monday, down roughly 0.2% on the day, as traders positioned for a Reserve Bank of Australia decision on Tuesday that markets expect to lift the cash rate a quarter point to 4.85%, according to Trading Economics. That would be the central bank's fifth increase of 2026.

For investors in Asia, the Aussie is one of the few liquid regional currencies backed by a central bank that is still raising rates. It traded at about 110.79 yen and 12,712 Indonesian rupiah on Monday, Trading Economics data showed, and it has gained about 7.3% against the U.S. dollar over the past 12 months. A stronger Aussie also makes Australian exports more expensive for buyers across Asia.

Hot CPI Lifted RBA Hike Odds to 88%

The case for a move hardened on Oct. 28. Data from the Australian Bureau of Statistics showed annual consumer price inflation rose to 4.3% in the 12 months to September, from 4.0% in August. Prices rose 0.8% in the month in original terms. The annual trimmed mean, the RBA's preferred gauge of underlying inflation, edged up to 3.6% from a revised 3.5%. Both measures sit above the bank's 2% to 3% target band.

Energy did much of the work. Automotive fuel was 23.6% more expensive than a year earlier and jumped 9.4% in September alone, the ABS said. Electricity rose 12.8% over the year, largely because Commonwealth power bill rebates ended, and rents climbed 3.6%. Readers can find the quarterly detail in our report on Australia's core inflation.

The headline figure beat a 4.2% forecast, and market pricing of a November hike rose to 88% from 60% before the release, Trading Economics reported. The currency climbed to a five-week high near 70 cents that day. Governor Michele Bullock had said earlier that upside risks to inflation were “materializing,” according to the same report.

Estimates have varied since. The Nightly cited VanEck's Russel Chesler on Oct. 28 as saying markets put the probability of an increase at about 80%, and Trading Economics put it at 83% on Oct. 30 as long-dated bond yields fell, as covered in our report on Australia's 10-year bond yield. Every estimate points to a hike as the most likely outcome.

Pricing had moved a long way in a month. In mid-October, before minutes of the September meeting were published, markets put the chance of a November increase at just over 20%, Pound Sterling Live reported. ANZ said then that a November hike was “more likely than not,” while Commonwealth Bank of Australia still expected a hold but flagged a clear risk of a quarter-point rise.

What the RBA Said in September

The bank raised the cash rate target by 25 basis points to 4.60% on Sept. 29, in a unanimous decision. In its statement, the Monetary Policy Board said the Middle East conflict had broadened, that global energy prices were much higher than assumed in its August forecasts and that firms were passing higher costs into prices. It said it would keep doing what it considered necessary, including raising the cash rate target again if needed.

The board also pointed to soft spots. Housing prices had fallen in most capital cities and new housing loans had declined noticeably, it said, and household spending was easing gradually.

The labor data since then has been mixed. Employment fell by 39,300 in September in seasonally adjusted terms and the unemployment rate rose 0.1 percentage point to 4.7%, the ABS reported on Oct. 15. Participation slipped to 66.8%. A weaker jobs market gives the board a reason to stop at 4.85%, and a November move was widely expected to mark the peak of the cycle, Trading Economics reported on Oct. 27.

Why the Aussie Has Stalled Near 70 Cents

The currency has given back some of its post-CPI gain. It extended modest losses from the previous week into the first trading day of November, Trading Economics said. Over the past month it is up only about 0.7%.

Part of the reason is that a hike is now largely in the price. A move to 4.85% on Tuesday would confirm what traders already expect, so the currency's next leg depends on the board's guidance. A statement that leaves the door open to more tightening would favor the Aussie. Language that signals a pause would point the other way.

The U.S. side matters too. The Federal Reserve held rates last week, and the gap between U.S. and Australian policy rates remains a key driver for AUD/USD. Trading Economics' models put the pair at about 0.706 by the end of the quarter.

The RBA announces its decision on Tuesday, Nov. 3, followed by Bullock's press conference. October labor force data follows on Nov. 19.