The divergence between Australian and US monetary policy is widening after the Federal Reserve left interest rates unchanged while Australian markets increasingly expect the RBA to raise borrowing costs next week.
The Federal Reserve maintained its benchmark rate at 3.75%-4.00% following a 10-2 vote, acknowledging that inflation remained elevated but saying policymakers wanted more information before changing policy.
Two officials voted for a 25-basis-point increase.
The decision came as US economic growth remains relatively strong despite elevated borrowing costs.
Australia is moving in the opposite direction.
RBA facing Melbourne Cup hike
Australian inflation unexpectedly accelerated to 4.3% in September, pushing financial-market expectations for a November RBA hike towards 90%.
The central bank has already increased the cash rate four times this year to 4.60%.
Another increase would lift the rate to 4.85%, potentially its highest level in about 17 years.
The divergence could also influence currency and bond markets.
The Australian dollar was trading around US70.6 cents after strengthening following the inflation figures, as investors priced in a wider interest-rate differential between Australia and the US.
The Federal Reserve has avoided giving firm guidance about its next move, saying future decisions will depend on inflation and economic data.
For Australia, the immediate picture is clearer.
Unless labour-market or economic data deteriorate dramatically before Tuesday’s meeting, the September inflation figures have made another increase increasingly difficult for the RBA to avoid.
That would place Australian households among the relatively few developed-market borrowers still experiencing active monetary-policy tightening heading into 2027.
