Thanks for reading our first Economy & Property Market Watch for 2026. As widely expected, the RBA has announced a 0.25% increase to the official cash rate, taking it to 3.85%.
Australia is the first central bank in the world to lift rates following the easing of monetary policy through Covid-19. Banks will adjust their interest rate settings accordingly.
Introducing "The Scorecard" as a starting line for 2026. 2026 may be a volatile ride, so let’s see how we go over the year, comparing both period to period and keeping the start as a frame of reference.
|
Measure |
Current (Start) | Previous |
| Cash Rate | 3.85% | 3.60% |
| Inflation Rate | 3.4% | 3.2% |
| Unemployment | 4.1% | 4.3% |
| GDP Q/Q | 0.4% | 0.6% |
| AUD to USD | 0.70c | 0.67c |
| Total Residential Property | $11.92 Trillion | $11.61 Trillion |
| RBA Commodity Index | 94.1 | 94.5 |
There are some OK numbers, though Growth is still sluggish and running at around 2% year on year. The IMF World Economic Outlook update projects global growth of about 3.3% in 2026 and 3.2% in 2027. This result is a small upgrade from the October 2025 projections but is still below pre-pandemic averages.
Australia will lag this in 2026. The long term GDP growth average since 1990 is around 3.3% but that was another era. Government will be happy if we sustain "The Goldilocks Range" (2%–3% annually). Growth in this range is solid enough to create jobs but slow enough to avoid high inflation, as well as keeping interest rate settings neutral.
Inflation is up and remains above the midpoint of the RBA’s 2–3% target band. Problem. Quarterly GDP growth has slowed from 0.6% to 0.4%, and unemployment is close to 4%, indicating an economy that is inefficient, though still operating near capacity.
Against this backdrop, the RBA continues to emphasise a data‑driven, meeting‑by‑meeting approach. Therefore, each new inflation and wages release has the potential to alter the short term outlook. It could be a "one & done" scenario, though markets are tipping that there is more to come.
According to NAB’s latest Quarterly SME Survey, business conditions for small and medium‑sized firms eased slightly in the December quarter but remained in positive territory, retaining most of the improvement recorded in Q3. Trading and profitability were broadly steady, while hiring intentions softened. Conditions and confidence ended the year a little below their long‑run averages.
NAB notes that larger SMEs are generally in better shape than smaller firms, and there are clear differences by industry and state. Conditions were strongest in property, business services and finance, weakest in retail, accommodation and food. Victoria was the only state in negative territory, with Western Australia and Queensland continuing to lead.
Some positivity here, as many anticipate capital value and rental growth across all major commercial sectors over the next 1–2 years. This may be led by industrial and selected hotel assets, with more moderate growth in office and retail.
Key drivers include constrained new supply (particularly in industrial), sustained demand for high-quality logistics and prime office space, and continued divergence between prime and secondary assets.
For owners and investors, this suggests greater resilience in industrial and prime, well-located assets. While secondary offices and discretionary-exposed retail warrant closer assessment of tenant quality, lease structures, and capital expenditure requirements.
National dwelling values rose strongly through 2025, led by Perth, Adelaide and Brisbane. However, Sydney and Melbourne lost momentum. Monthly growth has slowed slightly, reflecting the combined effect of expected higher interest rates and stretched affordability.
Most forecasters expect a gradual cooling rather than a correction in 2026, with tight rental markets, limited new supply and strong migration providing ongoing support.
Capital City Housing Performance in January 2026
| Location | Month | Quarter | Annual |
|
Adelaide
|
1.2% |
4.7% |
9.7% |
|
Brisbane
|
1.6% |
5.1% |
15.7% |
|
Melbourne
|
0.1% |
0.1% |
5.4% |
|
Sydney
|
0.2% |
0.2% |
6.4% |
|
Perth
|
2.0% |
7.0% |
18.5% |
|
All Capitals
|
0.7% |
2.1% |
9.2% |
|
All Regionals
|
1.0% |
3.2% |
10.3% |
Australian government bond yields have moved higher, with the 2‑year yield above 4% and the 10‑year yield in the high‑4 range, producing an upward‑sloping yield curve.
Repricing across the 2 to 5‑year area of the curve continues to place upward pressure on fixed mortgage and business‑loan rates. We compare this to other economies below:
|
Country |
Cash Rate | 10 Year | Spread |
| Australia | 3.85% | 4.77% | 0.92% |
| Canada | 2.25% | 3.42% | 1.17% |
| India | 5.25% | 6.78% | 1.53% |
| Japan | 0.75% | 2.23% | 1.48% |
| New Zealand | 2.25% | 4.65% | 2.40% |
| UK | 3.75% | 4.50% | 0.75% |
| USA | 3.75% | 4.21% | 0.46% |
The change in rate settings for Japan is a real story, with the central bank not ruling out more increases this year. UK & US yield curves are in a better place.
The Australian equity market has been volatile but has posted a modest gain over the past month and is higher than a year ago. Resource and other cyclically sensitive stocks have supported the index, while financials and technology have underperformed as investors adjust to a “higher for longer” interest‑rate profile and ongoing geopolitical risks. Performance continues to lag other major indicies.
Global equity markets have delivered mixed but generally positive returns, with performance driven by expectations for US rate cuts and a variable earnings season. US and European indices have advanced, Japan has remained strong but volatile, and China has stabilised on the back of additional policy support.
Japan remains one of the more volatile markets, reflecting uncertainty around the timing and extent of Bank of Japan policy normalisation and currency movements. For now, it is pushing through.
US equities continue to be supported by a resilient earnings backdrop and the prospect of gradual Federal Reserve easing. UK equities begins 2026 near record levels, helped by easing recession fears and expectations of stable or easing interest rates.
|
Country |
Mark |
1 Mth |
6 Mth |
1 Yr |
5 Yr |
|
|
Australia |
All Ords | 0.4% | 1.6% | 5.1% | 27.5% | |
|
Germany |
DAX | 0.2% | 3.5% | 14.8% | 74.9% | |
|
Japan |
Nikkei | 1.6% | 30.7% | 36.7% | 82.9% | |
|
UK |
FTSE |
2.9% | 11.4% | 18.4% | 48.7% | |
|
USA |
Dow Jones |
1.1% | 10.7% | 10.1% | 56.9% | |
|
Average |
1.2% | 11.6% | 17.0% | 58.2% |
The Australian dollar is trading around 0.70 against the US dollar, towards the upper end of its recent range. Against other major currencies, it sits near mid‑range levels, weaker than several years ago versus the euro and pound, but stronger relative to the New Zealand dollar, Canadian dollar and Japanese yen.
Relatively high local interest rates provide support for our currency. For import‑focused businesses, this offers some relief on US‑dollar‑denominated input costs. For exporters, it maintains reasonable competitiveness and will test demand in some parts if these levels sustain.
2026 RBA Monetary Policy Announcements
Thank you for reading our first Market Watch for the year. The next RBA cash rate announcements will be at 2:30pm on the following Tuesdays in 2026:
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