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Canadian GDP contracted by 0.3% m/m in October, in line with Statistics Canada's advanced guidance and market expectations.

Compositionally, 11 of 20 industries registered a decline on the month. Goods industries (-0.7% m/m) reversed out last month's hefty gain, while the services sector contracted by a smaller 0.2% m/m.

On the goods side, the manufacturing sector (-1.5% m/m) contributed most to the GDP contraction, offsetting last month's expansion. A 0.6% m/m pullback in the mining, oil & gas sectors also contributed to monthly GDP decline. Meanwhile, the construction sector fell for a second consecutive month (-0.4% m/m).

On the services side, the education sector fell by 1.8% weighed down by the teachers strike in Alberta. Meanwhile, the transportation and warehousing sector (-1.1% m/m)  reversed out last month's gain. Wholesale and retail trade also fell by 0.9% m/m and 0.6% m/m, respectively.

Advanced guidance calls for a slight uptick in November GDP (0.1% m/m). Increases in the education, construction, and transportation sectors are expected to be partially offset by activity in the manufacturing and mining, oil & gas sector.

Key Implications

After an upside surprise to growth in the third quarter, today's GDP data together with November guidance indicate that fourth-quarter GDP growth is tracking roughly flat. Tariff-impacted industries showed some strain in October after gradually recovering in prior months. The expectation is that overall economic growth will remain subdued over the next quarter or two before gradually recovering over the medium-term.

The Bank of Canada (BoC) doesn't make its next policy decision until January 28th, and we don't think today's data moves them off of their current policy stance. The BoC has acknowledged that trade-related impacts on inflation and economic growth are becoming more clear, though that doesn't lower the level of uncertainty in coming quarters as Canada and the U.S. continue to work on hammering out a trade deal. All told, we maintain our view that the BoC has reached the end of their interest rate easing cycle.

After having been delayed by nearly two months because of the government shutdown, this morning the Bureau of Economic Analysis released its initial estimate of Q3 GDP (replacing both the advance and second estimates) and a preliminary reading of corporate profits (normally released with the second estimate of GDP).

The U.S. economy expanded by 4.3% quarter-on-quarter (q/q, annualized) in the third quarter – well above the consensus forecast of 3.2% – and a modest acceleration from Q2's 3.8%.

Consumer spending rose a healthy 3.5% q/q, following a smaller gain of 2.5% in Q2. Both goods (+3.1%) and services (+3.7%) spending was higher on the quarter.

Business investment rose 2.8% q/q, marking a deceleration from a very strong first half of the year. In terms of the breakdown, both equipment (+5.4%) and intellectual property products (+5.4%) were higher, while spending on structures (-6.3% q/q) declined for a seventh consecutive quarter.

Residential investment declined 5.1% q/q, as both homebuilding and sales activity remained subdued.

Government spending rose a 2.2%, with both federal (+2.9%) and state & local spending (+1.8%) higher on the quarter.

International trade had a smaller (but still meaningful) influence on Q3 GDP. Imports fell 4.7% q/q while exports rose 8.8% q/q, resulting in net exports adding 1.6 percentage points (pp) to growth. Meanwhile, inventory investment shaved 0.2pp.

Final sales to private domestic purchasers, a better gauge of underlying demand as it includes only household consumption and fixed investment rose to 3.0%, following a similar gain in Q2.

Real Gross Domestic Income (GDI) – an alternative measure of economic output – rose 2.4% after rising a similar 2.6% in Q2. Corporate profits rose 18% annualized or $166 billion after accounting for inventory valuation and capital consumption adjustments. Personal income was up 3.3%, as employee compensation rose 3.8%.

Key Implications

The U.S. economy maintained considerable momentum in the third quarter, despite headwinds. Consumer spending recorded another solid quarter, while capital expenditures continued to expand at healthy clip, aided by further investments in AI but also some broadening to more traditional forms of equipment spending.

As we round the corner to close out 2025, today's Q3 GDP data feels somewhat stale. We know Q4 got off to a very rocky start, as a record long six-week government shutdown resulted in over 650,000 federal employees being temporarily furloughed without pay. This will exert a meaningful drag on near-term activity, with Q4 growth likely to slow to a sub-1%. However, these effects should reverse in Q1-2026, with growth expected to rise closer to a "trend-like" 2% pace.

Daily Pivots: (S1) 156.59; (P) 157.15; (R1) 157.59; More...

USD/JPY's sharp decline today suggests rejection by 157.88 resistance, and intraday bias is turned neutral. Consolidations from 1.5788 is extending with another downleg. But further rally is expected as long as 154.33 support holds. Firm break of 158.85 key structural resistance will be an important medium term bullish sign. Next target will be 161.94 high. However, decisive break of 154.38 will turn bias to the downside for deeper correction.

In the bigger picture, corrective pattern from 161.94 (2024 high) could have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94 high. Decisive break of 158.85 structural resistance will solidify this bullish case and target 161.94 for confirmation. On the downside, break of 150.90 resistance turned support will dampen this bullish view and extend the corrective range pattern with another falling leg.

Yen rebounded broadly today, but the move appears driven more by pre-holiday profit-taking than a genuine shift in trend. Position squaring into year-end has offered temporary relief after recent weakness, yet price action lacks the conviction typically associated with durable reversals. There was also some support from stepped-up verbal intervention by Japanese officials. Authorities delivered their strongest warnings yet against excessive currency moves, helping to slow speculative pressure even if the impact remained short-lived.

Japanese Finance Minister Satsuki Katayama said the recent yen declines “absolutely do not reflect fundamentals,” adding that the government stands ready to take appropriate action against excessive moves. She suggested the scale of the Yen’s fall pointed to speculative behavior. Additionally, she referred to Japan’s September agreement with the U.S. on exchange-rate policy as a framework for possible intervention.

Yen sentiment also drew modest support from Prime Minister Sanae Takaichi, who emphasized that Japan’s national debt remains “still high.” She rejected irresponsible bond issuance or tax cuts, highlighting an effort to support growth without undermining confidence in Japan’s public finances or yen-denominated assets.

However, fiscal concerns remain a structural drag. Former BoJ policymaker Seiji Adachi argued bluntly that Yen weakness persists despite narrowing Japan–U.S. rate differentials, suggesting BOJ policy is no longer the main driver. Instead, he said investors are increasingly demanding a higher premium for Japan’s fiscal risk. Those concerns are already visible in rising Japanese government bond yields. Adachi warned it will be difficult to erase market doubts over Japan’s finances after proactive fiscal policies were so strongly emphasized, adding that higher bond yields could become the biggest risk to Japan’s economy next year.

Meanwhile, Dollar traded broadly lower, extending a soft year-end tone. Mixed U.S. data offered little support, with markets largely shrugging off the upward revision to Q3 GDP while focusing on sluggish October durable goods orders. Dollar is now on track for its weakest annual performance in eight years, and some see scope for further downside. Risks appear asymmetric, with attention increasingly centered on labor market health, while inflation concerns have been partially overshadowed. Additional uncertainty surrounds the prospect of a more politically influenced Fed following the replacement of Jerome Powell, which could tilt policy toward deeper easing. Still, that picture could shift early next year with December non-farm payrolls.

For now, Kiwi and Aussie lead gains alongside Yen, while Dollar sits at the bottom, followed by Euro and Sterling, with Swiss Franc and Loonie holding the middle ground.

In Europe, at the time of writing, FTSE is down -0.11%. DA is up 0.02%. CAC is down -0.31%. UK 10-year yield is down -0.06 at 4.532. Germany 10-year yield is down -0.018 at 2.882. Earlier in Asia, Nikkei rose 0.02%. Hong Kong HSI fell -0.11%. China Shanghai SSE rose 0.07%. Singapore Strait Times rose 0.62%. Japan 10-year JGB yield fell -0.041 to 2.040.

US durable goods fall -2.2% mom as transport orders drag

US durable goods orders fell -2.2% mom to USD 307.4B in October, undershooting expectations for a -1.5% decline. The weakness was driven largely by transportation equipment, which dropped -6.5% to USD 103.9B after two consecutive monthly increases.

Beneath the surface, underlying demand appeared more resilient. Orders excluding transportation rose 0.2% mom to USD 203.5B, in line with forecasts, suggesting steadier business investment outside volatile categories. Orders excluding defense declined -1.5% mom to USD 286.5B.

Canada GDP shrinks -0.3% mom as manufacturing drags, November looks firmer

Canada’s economy contracted in October, with real GDP falling by -0.3% mom, in line with expectations. The slowdown was broad-based, with 11 of 20 industrial sectors posting declines, highlighting ongoing softness across the economy.

Goods-producing industries were the main drag, falling -0.7% on the month as most components weakened. Manufacturing led the decline, reinforcing concerns that external demand and tighter financial conditions continue to weigh on Canada’s industrial base. Services-producing industries also slipped by -0.2%, partly reflecting labor stoppages that disrupted activity in several areas.

Looking ahead, early indications point to modest stabilization. Advance data suggest real GDP by industry rose 0.1% mom in November, supported by gains in educational services, construction, and transportation and warehousing. These were partly offset by renewed weakness in mining, quarrying, oil and gas extraction, and manufacturing.

RBA minutes confirms 2026 hike risk, AUD/USD presses 0.67, eyes 0.72 next year

Australian Dollar surged broadly after minutes from the December policy meeting confirmed that the RBA had actively discussed the possibility of a rate hike in 2026. While officials stressed that such an outcome is far from assured, the acknowledgment alone was enough to reprice expectations and trigger a sharp AUD bid.

According to the minutes, board members debated whether a rise in the cash rate might need to be considered sometime next year following a recent pickup in inflation. Policymakers agreed that risks to inflation had tilted to the upside, but emphasized that it would take “a little longer” to judge whether price pressures would prove persistent rather than temporary.

The discussion also revealed internal disagreement over whether financial conditions remain sufficiently restrictive. Some members pointed to aggressive bank lending and ongoing strength in housing prices as signs that conditions may no longer be tight enough to restrain inflation effectively, adding weight to the upside risk narrative.

At the same time, the board agreed that labor market conditions remain somewhat tight, with the economy likely still operating in excess demand. Elevated capacity utilization was also flagged as evidence of ongoing supply constraints, reinforcing concern that inflation could prove more stubborn than previously assumed.

Markets reacted by pushing AUD higher across the board, with AUD/USD extending its rebound from 0.6420. Immediate focus has now shifted to a critical cluster resistance zone around 0.6706–0.6713, which includes 38.2% retracement of 0.8006 to 0.5913 at 0.6713.

Decisive break above this 0.6716/13 zone would mark a significant technical development. It would strengthen the case that AUD/USD is already reversing the entire downtrend from the 2021 high at 0.8006.

In that scenario, the next near-term target comes in at 61.8% projection of 0.5913 to 0.6706 from 0.6420 at 0.6910.

Beyond the near term, confirmation of a broader trend reversal would open scope for a move toward to 61.8% retracement of 0.8006 to 0.5913 at 0.7206 and above next year.

USD/JPY Daily Outlook

Daily Pivots: (S1) 156.59; (P) 157.15; (R1) 157.59; More...

USD/JPY's sharp decline today suggests rejection by 157.88 resistance, and intraday bias is turned neutral. Consolidations from 1.5788 is extending with another downleg. But further rally is expected as long as 154.33 support holds. Firm break of 158.85 key structural resistance will be an important medium term bullish sign. Next target will be 161.94 high. However, decisive break of 154.38 will turn bias to the downside for deeper correction.

In the bigger picture, corrective pattern from 161.94 (2024 high) could have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94 high. Decisive break of 158.85 structural resistance will solidify this bullish case and target 161.94 for confirmation. On the downside, break of 150.90 resistance turned support will dampen this bullish view and extend the corrective range pattern with another falling leg.

US durable goods orders fell -2.2% mom to USD 307.4B in October, undershooting expectations for a -1.5% decline. The weakness was driven largely by transportation equipment, which dropped -6.5% to USD 103.9B after two consecutive monthly increases.

Beneath the surface, underlying demand appeared more resilient. Orders excluding transportation rose 0.2% mom to USD 203.5B, in line with forecasts, suggesting steadier business investment outside volatile categories. Orders excluding defense declined -1.5% mom to USD 286.5B.

Full US durable goods orders release here.

Canada’s economy contracted in October, with real GDP falling by -0.3% mom, in line with expectations. The slowdown was broad-based, with 11 of 20 industrial sectors posting declines, highlighting ongoing softness across the economy.

Goods-producing industries were the main drag, falling -0.7% on the month as most components weakened. Manufacturing led the decline, reinforcing concerns that external demand and tighter financial conditions continue to weigh on Canada’s industrial base. Services-producing industries also slipped by -0.2%, partly reflecting labor stoppages that disrupted activity in several areas.

Looking ahead, early indications point to modest stabilization. Advance data suggest real GDP by industry rose 0.1% mom in November, supported by gains in educational services, construction, and transportation and warehousing. These were partly offset by renewed weakness in mining, quarrying, oil and gas extraction, and manufacturing.

Full Canada GDP release here.

The latest UK GDP data showed annualised growth of 1.3%, in line with market expectations and slightly below the previous reading of 1.4%. The report had a broadly neutral impact on sterling, as it confirms the UK economy continues to expand, albeit at a moderate pace, without signs of acceleration.

For the GBP/USD pair, the lack of surprise is the key takeaway. With the data matching consensus forecasts, investors have little reason to reassess their current macroeconomic outlook. In such cases, the pound tends not to attract fresh buying momentum but also avoids sharp selling pressure.

Nevertheless, the slight deceleration in growth from the prior period creates a modestly cautious backdrop for sterling. The softer figure may signal that the economy remains sensitive to elevated interest rates and subdued domestic demand. This interpretation could temper expectations of further monetary tightening from the Bank of England and limit the scope for more hawkish communication.

In the near term, the direct market impact of this GDP release is assessed as largely neutral, albeit with a mild downside bias for the pound. Subsequent direction will likely depend on upcoming UK inflation and labour market reports, alongside evolving US rate expectations and broader global risk sentiment.

Technical Analysis: GBP/USD

H4 Chart:

On the H4 chart, the pair has entered a broad consolidation zone around 1.3418. We anticipate a possible extension of the range towards 1.3500 in the near term, followed by a corrective pullback to 1.3418. Upon completion of this retracement, the broader upward trend is expected to resume, targeting 1.3520, with potential for further extension towards 1.3550.

This outlook is supported by the MACD indicator, with its signal line positioned above zero and pointing firmly upward.

H1 Chart:

On the H1 chart, price action formed a tight consolidation around 1.3424 before breaking higher and advancing to 1.3492 (a local target). We now expect a corrective decline to retest the 1.3424 level from above. Once this correction concludes, the focus will shift to the potential for a subsequent growth wave toward 1.3533.

This scenario is validated by the Stochastic oscillator, whose signal line is above 80 and has begun to turn lower towards the 20 level, indicating near-term corrective momentum.

Conclusion

The GBP/USD pair is likely to remain range-bound in the wake of in-line GDP data, which neither strengthens nor weakens the sterling narrative decisively. While the technical structure favours further upside in the medium term, near-term price action suggests a period of consolidation or mild correction may precede any renewed bullish impulse.

As the XBR/USD chart shows, Brent crude trading opened this week near the $61.40 level, and by Tuesday morning the price was hovering around $61.50 (approximately +1.7%).

Oil prices are being pushed higher by geopolitical developments, including:

→ Pressure on Venezuela. President Trump stated that the United States could seize or sell oil from Venezuelan tankers that have been blocked.

→ Ukrainian attacks on ports and tankers linked to the transportation of Russian oil.

As a result, oil has gained around 5% from its seven-month low recorded on 16 December (point B), reflecting the risk premium that traders are building into the price of a barrel.

Technical Analysis of the XBR/USD Chart

Since mid-October, prices have remained in a downtrend, driven by a global increase in oil supply (analysts expect the supply surplus to persist into 2026).

At the same time:

→ price fluctuations have formed a descending channel, which was extended lower during the bearish impulse on 15–16 December;

→ at the low (B), the price failed to reach the lower boundary of the channel (a bullish signal), and then formed two bullish gaps (marked by arrows);

→ during the second gap, price moved aggressively into the upper half of the channel.

From a bullish perspective, price action suggests that buyers are currently in control, meaning traders should be prepared for a scenario in which rising geopolitical tensions push XBR/USD towards the upper boundary of the channel.

From a bearish standpoint, it is reasonable to assume that the area between the 50% and 61.8% Fibonacci retracement levels (where oil is trading today) could act as resistance following the A→B decline.

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Australian Dollar surged broadly after minutes from the December policy meeting confirmed that the RBA had actively discussed the possibility of a rate hike in 2026. While officials stressed that such an outcome is far from assured, the acknowledgment alone was enough to reprice expectations and trigger a sharp AUD bid.

According to the minutes, board members debated whether a rise in the cash rate might need to be considered sometime next year following a recent pickup in inflation. Policymakers agreed that risks to inflation had tilted to the upside, but emphasized that it would take “a little longer” to judge whether price pressures would prove persistent rather than temporary.

The discussion also revealed internal disagreement over whether financial conditions remain sufficiently restrictive. Some members pointed to aggressive bank lending and ongoing strength in housing prices as signs that conditions may no longer be tight enough to restrain inflation effectively, adding weight to the upside risk narrative.

At the same time, the board agreed that labor market conditions remain somewhat tight, with the economy likely still operating in excess demand. Elevated capacity utilization was also flagged as evidence of ongoing supply constraints, reinforcing concern that inflation could prove more stubborn than previously assumed.

Full RBA minutes here.

Markets reacted by pushing AUD higher across the board, with AUD/USD extending its rebound from 0.6420. Immediate focus has now shifted to a critical cluster resistance zone around 0.6706–0.6713, which includes 38.2% retracement of 0.8006 to 0.5913 at 0.6713.

Decisive break above this 0.6716/13 zone would mark a significant technical development. It would strengthen the case that AUD/USD is already reversing the entire downtrend from the 2021 high at 0.8006.

In that scenario, the next near-term target comes in at 61.8% projection of 0.5913 to 0.6706 from 0.6420 at 0.6910.

Beyond the near term, confirmation of a broader trend reversal would open scope for a move toward to 61.8% retracement of 0.8006 to 0.5913 at 0.7206 and above next year.

Hybrid – 8 and 9 December 2025

Members participating

Michele Bullock (Governor and Chair), Andrew Hauser (Deputy Governor and Deputy Chair), Marnie Baker AM, Renée Fry-McKibbin, Ian Harper AO, Carolyn Hewson AO, Iain Ross AO, Alison Watkins AM, Jenny Wilkinson PSM

Others participating

Sarah Hunter (Assistant Governor, Economic), Christopher Kent (Assistant Governor, Financial Markets)

Anthony Dickman (Secretary), David Norman (Deputy Secretary)

Meredith Beechey Osterholm (Head, Monetary Policy Strategy), Sally Cray (Chief Communications Officer), David Jacobs (Head, Domestic Markets Department), Michael Plumb (Head, Economic Analysis Department), Penelope Smith (Head, International Department)

Financial conditions

Members commenced their discussion of financial conditions by reviewing developments in advanced economy equity markets. Market sentiment had deteriorated briefly amid concerns about elevated valuations, especially for global technology companies. Equity prices had fallen for a period but there had been a subsequent rebound in many countries. In the United States, this partly reflected expectations of additional monetary policy easing. However, the decline in Australian equity prices had been more persistent than in other markets, reflecting a shift higher in the expected path for the cash rate and a reappraisal of valuations in some market segments. Corporate bond yields had increased in some countries, but spreads to government bond yields remained low across the world. Members observed that investors in equity and corporate bond markets continued to price in a benign global economic and financial outlook and appeared willing to accept low levels of compensation for the risk of weaker outcomes.

Members noted that financial market participants expected the US Federal Reserve to cut its policy rate at its 10 December meeting, and to continue easing policy in 2026 as the immediate impacts of higher tariffs and prior fiscal stimulus waned. By contrast, the European Central Bank was not expected to cut rates further and the next move in policy rates in Canada, New Zealand, Sweden and Australia was expected to be up. The Bank of Japan was expected to continue gradually raising its policy rate amid persistent inflationary pressures.

Members discussed the rise in market-implied expectations for the policy rate in Australia in more detail. They noted that expectations had moved significantly higher in prior months, but the pick-up had been relatively smooth and progressive as a sequence of data releases showed the domestic outlook had strengthened and risks to the global economy had receded. That trend had continued since the previous meeting, as markets moved from pricing in a further 25 basis point cut in the cash rate by the end of 2026 to pricing in a 25 basis point increase. Members noted that this latest shift was in response to both communication by the RBA and the release of data on inflation, the labour market and GDP. These data had been interpreted by markets as suggesting that capacity constraints and inflationary pressures were building.

Trends in long-term sovereign bond yields had broadly mirrored shifts in policy rate expectations in Australia and abroad. Sovereign bond yields had declined in the United States in prior months but had increased in Japan, Germany, Canada and Australia. In Japan, the increase in bond yields was in anticipation of both fiscal stimulus and further monetary policy tightening by the Bank of Japan. Members noted that the rise in short-term bond yields in Australia was consistent with market participants expecting both a tighter outlook for monetary policy and higher inflation in the near term. However, market measures of long-term inflation expectations had remained anchored and consistent with the inflation target, implying that investors expected the Board would respond as needed to the evolving inflation outlook.

In China, total social financing had continued to rise faster than nominal GDP. This was driven largely by government borrowing, including because of efforts to shift debt from local government financing vehicles to local governments. Household demand for credit remained very weak, reflecting ongoing concerns about the property market.

Members turned to considering the extent to which current Australian financial conditions were restrictive. Taken together, the incoming data had reduced their confidence in their earlier assessment that monetary policy was still a little restrictive.

Members considered model-based estimates of the neutral cash rate, which reflect data on inflation, the labour market and bond yields. These implied that the cash rate was now around the average of the central estimate of its neutral level from the full suite of models maintained by RBA staff. Members acknowledged that model estimates of the neutral cash rate were subject to considerable estimation error and provided no direct guide to monetary policy.

Members therefore assessed the implications for financial conditions from a range of other indicators. The picture remained somewhat mixed but was consistent with a further easing in conditions over the preceding month. Extra mortgage payments were still at a high level and the aggregate household savings ratio was higher than its pre-pandemic average, both of which were consistent with monetary policy being a little tight. However, demand for credit had picked up significantly and household credit was now growing in line with disposable incomes, following a period in which households had deleveraged. This was most notable for housing credit to investors, which tends to be more responsive to interest rate cuts than housing credit to owner-occupiers. Growth in business debt had also remained strong and business debt relative to GDP had risen to be around pre-pandemic levels.

Members noted that the Australian dollar had appreciated only a little since the November meeting, despite the significant rise in the average interest rate differential between Australia and major advanced economies. Members observed that the limited response of the exchange rate to interest rate differentials was potentially contributing to easier financial conditions than otherwise. However, the real exchange rate had appreciated over preceding years, implying a decline in international competitiveness.

Economic conditions

Members began their discussion of economic conditions by considering trends in inflation. They noted that a range of data received since the November meeting pointed to the possibility that inflationary pressures could be a little more persistent than had been previously assessed.

Members welcomed the inaugural release of the complete monthly CPI. The new data showed that headline inflation over the year to October had increased to 3.8 per cent. Some of that increase reflected the cessation of government electricity rebates for some households; members noted that all federal and state government electricity rebates would cease by early 2026. Inflation for items such as new dwelling costs and market services had remained elevated, as expected by the staff at the time of the November projections. However, inflation of durable goods prices had exceeded expectations and inflation of domestic travel prices, which can be volatile, was elevated. Overall, the data suggested some upside risk to the outlook for underlying inflation in the near term, and it was likely that headline inflation would exceed the November forecasts in the near term.

Members noted that it would take time to understand the properties of the new monthly CPI data. Furthermore, as the November Statement had set out, monthly data are inherently more volatile than quarterly data, and the difficulty of seasonally adjusting some components at a monthly frequency (owing to their short history) would make the trimmed mean and other measures of the underlying monthly inflation rate less reliable for a period. As a result, the staff would continue to rely primarily on the quarterly CPI – which has a much longer history and well-understood properties – for a while to assess the underlying momentum in inflation. Members noted that inflation data for the December quarter would be available prior to the February meeting.

Members discussed a range of other data that were also signalling higher inflationary pressures. These data included various price measures from the recently released national accounts. Growth in average earnings and unit labour costs had risen in the September quarter and were stronger than had been expected. Model-based estimates of capacity pressures in the economy had been revised higher, and the NAB business survey measures of capacity utilisation had also increased since the middle of the year.

By contrast, the Wage Price Index (WPI) measure of wages growth had been broadly steady in recent quarters (after adjusting for administered wage decisions). Higher public sector wages growth had been offsetting an easing in private sector wages growth in the WPI, which had declined to its lowest rate since 2021.

Members considered what a broader range of indicators implied about balance in the labour market. The increase in the unemployment rate recorded in September had been unwound in October. Other measures of labour underutilisation also remained at low levels. Information from business surveys and liaison continued to suggest that a significant share of firms were experiencing difficulty sourcing labour. Members were presented with some refinements to how labour market indicators were being incorporated into the staff’s assessment of conditions relative to full employment. These refinements included: reviewing which labour market indicators provided the best information to assess full employment; improving the way in which cyclical movements are identified; and strengthening the methodology for aggregating this information to inform an assessment of the extent of labour market tightness. Members noted that the results from this new analysis provided additional support for the staff’s existing assessment that labour market conditions remained a little tight, rather than changing it significantly. The framework will be outlined in the February 2026 Statement.

Turning to momentum in the economy, members noted that year-ended GDP growth had picked up in the September quarter to around the staff’s estimate of potential growth, as had been expected in November. The composition of growth had also continued to shift from public to private demand. Members noted that the 1.2 per cent increase in private demand had been much stronger than the expectation of 0.5 per cent at the time of the November Statement, but the impact of this on overall GDP growth had been somewhat offset by a large and unexpected drawdown of mining inventories, and increased imports. Much of the unexpected strength in private demand was driven by investment in components that can be volatile from quarter to quarter and which are largely imported. However, members noted that investment in data centres (one component of the strength in the quarter) was likely to continue in the coming years and observed that, in turn, this could stimulate additional infrastructure investment. Momentum in dwelling investment also appeared to be rising and members noted that data revisions meant household incomes now appeared higher than previously recorded. Members observed that, while the easing in monetary policy since the beginning of the year had certainly begun to support conditions in the private sector, the bulk of the effect on activity was expected to be seen in 2026, helping to offset the decline in other drivers of growth. Business surveys also supported the expectation that the recovery in private demand would be sustained. Members noted that this, in turn, would support labour demand.

In the global economy, members noted that production and trade had been relatively resilient over preceding months and were again a little stronger than expected. The likelihood of a significant tariff-related slowdown in global growth had continued to recede, partly reflecting fiscal and monetary policy support in some economies and a significant realignment of trade flows. Very strong investment in the United States associated with artificial intelligence and new technologies more broadly had also been an important contributor to global economic activity. By contrast, fixed asset investment in China had been very weak. While the staff’s central forecast remained that Chinese authorities would provide the necessary stimulus to meet their GDP growth target, concerns persisted around excess capacity in some sectors of the Chinese economy and how that would be resolved.

Considerations for monetary policy

Turning to considerations for the monetary policy decision, members highlighted three judgements that were central to their decision at this meeting: first, the extent to which aggregate demand exceeds potential supply, and the implications of this for the persistence of the recent pick-up in inflation; second, the outlook for growth in labour demand and economic activity; and, third, whether financial conditions were still restrictive. Given the inherent uncertainty around each of these, members considered both their central outlook and whether their distribution of risks around the outlook had shifted.

Regarding inflation, members noted that the September quarter CPI release had been well above the forecast published in the August Statement. Moreover, the detail within the October monthly CPI data pointed to the possibility that inflation in the December quarter could also be higher than had been expected in the November forecast. Members noted that a range of other data from the national accounts were suggesting the possibility of a more broad-based pick-up in cost and price inflation: average earnings growth had been strong; unit labour costs had continued to grow quite quickly; and output price inflation was above its historical average.

At the same time, members noted several reasons to be cautious about how much signal to draw from these data. There was uncertainty around the extent to which the recent pick-up in the CPI inflation data across several components would be sustained. Members also noted that both average earnings and unit labour costs are typically quite volatile and had been influenced by some one-off factors in the September quarter. These considerations all suggested that it was prudent to be cautious before extrapolating recent strength in inflation too far into the future.

Turning to the outlook for the labour market, members noted that the rise in the unemployment rate reported at the November meeting had since unwound. They agreed that this had reduced the risk of a material easing in labour market conditions. Future labour demand was expected to be supported to some extent by the recovery in private economic activity. Members pointed to the various signs that suggested the lift in private demand would be sustained, including upward revisions to firms’ capital expenditure expectations. Members discussed the continued presence of downside risks emanating from the world economy and global asset valuations, but noted that global growth and trade had proven materially stronger than had been expected. Moreover, the risks to the outlook no longer appeared as pronounced as earlier in the year.

Regarding the extent of excess demand, members judged that the recent data and analysis by the staff supported greater confidence in their judgement that the labour market was still a little tight and the output gap still positive. Indeed, there was some risk that capacity constraints in the labour market could prove tighter than expected, especially if the recovery in activity strengthened further. In relation to the output gap, members observed that recent data on inflation and output growth had resulted in a rise in model-based estimates of excess demand. Members highlighted the independent signal from the NAB survey’s indicator of capacity utilisation, which also suggested that capacity constraints had increased further above historical averages. Members noted that the forecasts from the November Statement had been consistent with the output gap being broadly stable over the coming two years, so these developments posed some upside risk to that outlook. They acknowledged, however, that some other economic forecasters were more optimistic about the potential growth rate of the economy.

Turning to their judgement about the stance of monetary policy, members agreed that there were conflicting signals about whether financial conditions were still restrictive or not, and it was not possible to be confident in any assessment. Some members judged that, on balance, financial conditions were perhaps no longer restrictive. These members placed a reasonable weight on signs that banks were competing aggressively to lend, risk premia in capital markets were low and the response in the housing market to policy easing earlier in the year had been quite marked. Other members assessed that, on balance, financial conditions were a little restrictive. These members placed more emphasis on the fact that the unemployment rate had drifted up over 2025. Members acknowledged that the full impact of the easing in monetary policy through 2025 was yet to be seen. However, government bond yields had risen materially in prior months and it would be important to evaluate the impact of those changes in the February 2026 forecasts.

Members expressed their concerns about the recent trend in inflation, the risk it could be more persistent than currently assessed and the potential for that persistence, if it crystallised, to contribute to an environment in which price increases are more readily accepted and households’ purchasing power comes under further pressure. They noted that the November forecast already projected underlying inflation to remain above the midpoint of the target range until 2027, albeit on the assumption that the cash rate followed the November market path, which envisaged further easing in monetary policy. Members noted that the economy appeared to be operating with a degree of excess demand and it was not clear whether financial conditions were sufficiently restrictive to bring aggregate demand and supply back to balance. Members discussed the circumstances in which, should these trends persist, an increase in the cash rate might need to be considered at some point in the coming year.

However, members judged that it was too early to determine whether inflation would be more persistent than they had assumed in November, given the uncertainties about the reliability of the signal from the new data series at present. If financial conditions were still slightly restrictive, and evidence emerged that a material part of the apparent renewed pick-up in inflationary pressures reflected volatile or temporary factors, then holding the cash rate at its current level for some time may be sufficient to keep the economy close to balance. It was also important to evaluate the impact of the recent material rise in market rates at both shorter and longer term maturities. Overall, therefore, while recent data suggested the risks to inflation had tilted to the upside, members felt it would take a little longer to assess the persistence of inflationary pressures. As a result, they agreed it was appropriate to leave the cash rate target unchanged at this meeting and assess at future meetings how their judgements about the key considerations had evolved.

In finalising its statement, the Board agreed to continue to be attentive to the data and the evolving assessment of the outlook when making its decisions. The Board will remain focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.

The decision

The Board decided unanimously to leave the cash rate target unchanged at 3.60 per cent.