RBA Rate Hike Fears Grow: ASX Stocks to Buy and Avoid

Just months ago, investors were betting on rate cuts to ease pressure on borrowers. That narrative has shifted dramatically. Inflation in Australia rose to 3.8% in October, above the RBA’s target of 2–3%. As a result, markets now see a 70% chance of at least one rate hike before the end of 2026. The RBA is still expected to hold the cash rate at 3.60% at its December meeting, but the outlook has become more aggressive. For investors, we believe this shift demands a serious rethink of portfolio positioning.

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Resources and Banks: The Historic Winners Ahead of RBA Hikes

History shows a clear pattern. Macquarie looked at every interest rate hike cycle since the early 1990s and found that ASX stocks actually did well before rates went up. In the 12 months before the first rate hike, the median return was almost 8%, and all five cycles saw positive returns. Rising rates aren’t always bad for the share market. The strong economy that forces the RBA to raise rates also helps companies earn more.

Resource stocks benefit from stronger growth, act as natural inflation hedges, and hold up better when bond yields rise. In our view, this makes them the standout sector for the current environment. Macquarie highlights several names:

Rio Tinto (ASX: RIO)– The diversified mining giant offers exposure to iron ore, copper, and aluminium with strong cash generation. Recent operational improvements at its Pilbara iron ore assets support the earnings outlook.

Pilbara Minerals (ASX: PLS) – Australia’s largest pure-play lithium producer- offers direct leverage to recovering spodumene prices, which rebounded sharply from their mid-2025 lows.

South32 (ASX: S32) – Diversified exposure to alumina, copper, and manganese reduces single-asset risk while capturing the late-cycle resources rally.

Northern Star (ASX: NST) – Australia’s largest gold producer remains Macquarie’s preferred large-cap gold name, with meaningful production growth ahead.

Perseus Mining (ASX: PRU) – The Africa-focused gold miner combines low costs with strong production momentum, offering leverage to gold’s defensive appeal.

Banks and financials typically see margin expansion when rates rise. Macquarie’s picks include:

ANZ (ASX: ANZ) and NAB (ASX: NAB)–  Both major banks stand to benefit from wider net interest margins and strong credit demand. Macquarie sees improving earnings trends for the sector.

Challenger (ASX: CGF)–  The annuities provider benefits directly from higher rates, which improve returns on its investment portfolio.

Zip Co (ASX: ZIP)–  Now cash flow positive with growing US market share, ZIP’s earnings momentum sets it apart from struggling fintech peers.

AFG (ASX: AFG)–  The mortgage broker benefits from increased refinancing activity as borrowers shop around in a higher-rate environment.

Transport stocks also benefit from late-cycle economic activity:

Aurizon (ASX: AZJ) and Orica (ASX: ORI) – Both names reflect the broader uptick in mining and industrial activity that accompanies stronger growth.

Consumers and REITs: The Sectors Most at Risk

On the other side, consumer-facing stocks face clear headwinds. Higher rates squeeze household budgets, directly impacting discretionary spending. Macquarie specifically cautions against:

Wesfarmers (ASX: WES) – Despite their quality retail franchises, Bunnings and Kmart are exposed to weakening consumer sentiment. We believe margin pressure looks likely if mortgage costs rise further.

Super Retail Group (ASX: SUL) – The owner of Supercheap Auto and Rebel Sport relies heavily on consumer confidence, which typically falls when borrowing costs increase.

REITs are equally vulnerable. Rising bond yields make property trusts less attractive relative to fixed income, and the sector has already underperformed as the market reprices rate expectations.

The Investor’s Takeaway

This is not a stagflation situation; the economy is still growing well. If the US Federal Reserve cuts rates, the US dollar may weaken, which usually helps commodity prices. That’s why resources and banks look like strong late-cycle options right now.
But investors should stay cautious. If Q4 inflation is higher than expected, talk of more rate hikes could pick up again. For now, it makes sense to focus on sectors that have strong earnings and pricing power.