The Assistant Governor of the Reserve Bank of Australia, Sarah Hunter, spoke at the 2025 AFIA Conference about the current state of the economy. She noted that they are close to reaching their inflation target, which is a good sign.

Risks And Economic Outlook

The risks in the economic outlook appear balanced, indicating stability ahead. It’s important to note that changes in monetary policy take time to show their effects, so decisions need to be made with the future in mind. We’re seeing signs that consumption is improving as the economic landscape changes. Household spending has increased slightly, indicating better economic conditions. Given these updates, we can conclude that the Reserve Bank of Australia is likely to maintain its current position. The tightening cycle from 2024 and early 2025 has ended. The key point is that another rate hike is very unlikely, shifting our attention from potential hikes to when the first rate cut might happen. Recent data supports this perspective, creating a balanced tension for the market. The latest quarterly CPI report from the Australian Bureau of Statistics in August 2025 showed inflation at 3.1%, just above the target range but a notable decrease from its peak. Additionally, retail sales increased by 0.4% last month, reinforcing that household spending remains strong despite the current cash rate of 4.85%.

Implications For Interest Rate Futures

For interest rate futures, this suggests the front end of the curve should stay stable. The market has already reacted, as pricing for the November 2025 meeting shows less than a 10% chance of a rate change. The main strategy will involve planning for when cuts might occur in 2026, which could be delayed by these consumption figures. This balanced outlook indicates that implied volatility on short-term interest rate options is likely to decrease. With the central bank signaling caution and no immediate triggers for changes, selling volatility through strategies like short straddles on three-year bond futures could be beneficial. The period of sudden, unexpected rate changes seen in 2024 seems to be behind us for now. For the Australian dollar, these factors create a mixed situation, likely resulting in range-bound trading. The peak in the cash rate limits the currency’s potential for growth, especially if other central banks take a hawkish stance. However, the unexpectedly strong domestic economy offers some support, preventing a steep drop. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now