By Brenton Tong, Managing Director and Senior Financial Adviser, Financial Spectrum
If you’ve been following the news lately, you’d be forgiven for feeling a little uneasy about the economy. Interest rates going back up. Conflict in the Middle East. Headlines about AI reshaping everything. It’s a lot to take in.
But here’s the thing. Most of the noise doesn’t require you to do anything differently. What matters is understanding the handful of shifts that genuinely affect your household, your investments, and your long-term plans.
This is our plain-English snapshot of where things stand as at March 2026, what’s driving the headlines, and what it actually means for people like you.
The global picture: growth with growing tensions
The global economy is still growing. The IMF forecasts 3.3% growth for 2026, which is roughly in line with long-term averages. But that number hides some important differences.
The US economy remains the strongest performer among developed nations, growing at around 2.4%, driven largely by massive investment in artificial intelligence and continued government spending. Europe is sluggish at 1.3%, weighed down by high energy costs and weak manufacturing. China continues to slow as it works through a prolonged property downturn, though stimulus measures are providing some cushion. India is the standout, growing at 6.4%, and Southeast Asia is benefiting from businesses diversifying their supply chains away from China.
What’s changed more recently is the geopolitical environment. US and Israeli military strikes on Iran in late February disrupted shipping through the Strait of Hormuz, one of the world’s most critical oil transit points. Brent crude rose sharply following the strikes, lifting pressure on petrol, freight and inflation more broadly.
Meanwhile, the AI investment boom is reshaping global markets. A handful of massive US technology companies are now driving a disproportionate share of returns. If you hold international shares, there’s a good chance a significant portion of your gains have come from just a few names. That concentration has been rewarding, but it also means markets are more fragile than the headline numbers suggest.
Closer to home: the RBA changes course
If you’re an Australian household, the biggest development this year is the Reserve Bank’s decision to raise the cash rate back to 3.85% in February. After three cuts during 2025 that brought the rate down to 3.60%, the RBA reversed course after inflation re-accelerated in the second half of last year.
Underlying inflation was 3.4% in the 12 months to January 2026, up from 3.3% in December 2025. Private spending came in stronger than expected, the housing market picked up again, and the labour market stayed tight at 4.1% unemployment. In short, the economy didn’t cool as much as the RBA had hoped.
As at mid-March, markets were pricing at least one further rate rise, with a second also possible. A cash rate around 4.35% by late 2026 was within market pricing, while more aggressive forecasts extended closer to 4.5%. The RBA’s own forecasts don’t see inflation returning comfortably to the middle of its 2–3% target band until mid-2028.
For households, this means mortgage repayments are likely to stay elevated, or increase further, for longer than many were hoping. On the flip side, savings accounts, term deposits and other cash holdings continue to earn genuine returns, and that may persist for some time yet.
What this means for your finances
Interest rates are likely staying higher for longer
One of the most important shifts to understand is that the ultra-low interest rate environment we lived through from roughly 2012 to 2022 was the exception, not the rule. Economists increasingly believe that interest rates have settled at a structurally higher level. In Australia, that probably means a cash rate somewhere around 3% to 3.5% over the medium term, well above the near-zero levels we became accustomed to.
This doesn’t mean you need to panic. But it does mean budgeting, borrowing, and return expectations all need to be recalibrated for a world where money costs more.
Your property and mortgage
The housing market has picked up again, which is part of the reason the RBA raised rates. If you’re a homeowner, rising prices are good news for your equity. But they also make further rate hikes more likely, because the RBA views a strengthening property market as a sign that financial conditions aren’t tight enough. If you’re on a variable rate or coming off a fixed rate, it’s worth stress-testing your budget against a cash rate of 4.5%. Not because it’s certain, but because it’s plausible.
The Australian dollar and your overseas investments
The Aussie dollar has recently traded around US$0.70–0.72. If you hold international shares or funds, a stronger dollar reduces the value of those holdings when converted back to Aussie dollars. It’s not a reason to change your investment strategy, but it’s worth understanding when you’re reviewing how your portfolio has performed.
Cash is earning real returns
With the cash rate at 3.85% and potentially heading higher, cash and term deposits continue to earn meaningful returns. This changes the equation for how much cash you hold in your overall financial plan. Holding some cash isn’t just a safety buffer. It’s a genuine part of the return picture, while also giving you flexibility to act when opportunities arise.
Bonds are worth a closer look
Government bond yields are well above their long-run averages, which means bonds are offering meaningful income for the first time in over a decade. If you have a medium to long-term investment horizon, bonds can now play a more useful role in your portfolio, providing steady returns and helping to balance out the ups and downs of shares.
How to think about all of this
When the economic environment feels uncertain, it’s tempting to react. But the biggest risk to long-term wealth isn’t market volatility or rate movements. It’s making emotional decisions during those moments.
The most useful thing you can do right now is make sure your financial plan reflects the world as it actually is, not as it was three years ago. That means checking your assumptions about interest rates, revisiting your cash flow, and making sure your investments are spread across different asset types and regions. If you’re unsure how these shifts affect your situation, a conversation with a financial adviser can help you focus on what actually matters.
If you’d like to talk through what this means for you, book a complimentary consultation with one of our financial advisers.
Frequently asked questions
Why did the RBA raise interest rates again after cutting them?
The RBA cut rates three times during 2025, but inflation re-accelerated in the second half of the year. Private spending and the housing market came in stronger than expected, and the labour market remained tight. The RBA judged that financial conditions were no longer restrictive enough to bring inflation back to its 2–3% target, so it raised the cash rate to 3.85% in February 2026.
How high could interest rates go in Australia in 2026?
At the time of writing, markets were pricing a high chance of another increase, with a second rise later in the year also possible. Forecasts beyond that vary, with around 4.35% by late 2026 sitting closer to market pricing than a straight 4.50% base case. The RBA has said every meeting is live, meaning decisions will depend on incoming inflation and employment data.
Should I be worried about the conflict in the Middle East affecting my finances?
The main way it affects households is through oil prices. The disruption to shipping through the Strait of Hormuz has pushed oil prices higher, which flows through to petrol, transport and eventually consumer prices. For most households, the direct impact is manageable, but if the conflict escalates and oil prices stay elevated, it could add to inflationary pressure and complicate the path for interest rates.
What does a stronger Australian dollar mean for my investments?
A stronger Australian dollar reduces the value of international investments when measured in Aussie dollars. If you hold global shares or funds, your reported returns may look softer even if the underlying investments have performed well. It’s not necessarily a reason to change strategy, but it’s important context when reviewing portfolio performance.
Is it a good time to hold more cash in my portfolio?
With cash rates at 3.85% and potentially rising, cash continues to earn genuine returns. Holding cash provides both income and flexibility to take advantage of opportunities if markets pull back. How much to hold depends on your personal circumstances, goals and risk tolerance, which is something a financial adviser can help you work through.
How can a financial adviser in Sydney help me navigate economic uncertainty?
A good financial adviser helps you separate noise from what actually matters for your situation. That means stress-testing your cash flow against different rate scenarios, making sure your investments are properly diversified, reviewing your insurance and estate planning, and ensuring your overall strategy reflects current conditions rather than assumptions from a few years ago. At Financial Spectrum, we provide fee-for-service advice with no commissions, so our guidance is always aligned with your interests.
Consistently ranked one of Sydney’s top financial planners (Adviser Ratings), Brenton helps his clients life a great life by making the most of their money. Read his full bio here.
