RBA holds rates and sees faster inflation cooling – AUD/USD cautious
AUD/USD analysis
The Reserve Bank of Australia kept rates unchanged at 4.35% for a second straight meeting, as widely expected, following three consecutive hikes earlier this year that have made policy "somewhat" restrictive and tightened financial conditions. [1]
Policymakers acknowledged that the impact of the Middle East conflict on inflation has been less than expected and lowered their projections. CPI is now seen as having peaked in the second quarter at 3.9%, down from a previously expected peak of 4.8%. Meanwhile, officials believe economic activity will be "subdued", seeing GDP growth cooling to 1.9% in Q2 and to 1.4% by year end, while unemployment is seen rising. [2]
A restrictive policy setting, a fragile economy and a weakening labour market give the RBA strong incentive to stay on hold. Crucially, the updated projections assume interest rates at 4.4% this year, down from 4.7% previously, indicating that markets are not convinced of another hike this year.
As a result, today's decision had a dovish tilt and AUD/USD edged lower in the immediate aftermath. The RBA's frontrunning has supported the Aussie this year but also leaves it vulnerable to pullbacks as the central bank has less room for additional tightening. At the same time, geopolitical uncertainty lingers and markets still price in higher Fed rates this year, supporting the USDOLLAR.
A return below the EMA200 would shift the bias to the downside and expose the pair to 0.6832. However, above the EMA200 AUD/USD retains the initiative and the ability to extend its advance toward this year's peak.
The RBA has kept the door open to more hikes and the implied cash rate peaks at 4.5% next year, leaving room for additional tightening. Officials may have lowered their CPI forecast but do not see inflation returning within the 2%-3% target range until early 2027, while warning of upside risks and cost pressures as crude flow disruptions linger.
Moreover, markets have trimmed their Fed rate hike bets recently, reacting to the last press conference and a string of soft data. Chair Warsh remained non-committal, inflation pressures cooled last month and the June jobs report showed a loss of 23,000 positions, strengthening the case for a hold.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
References
| Retrieved 11 Aug 2026 https://www.rba.gov.au/media-releases/2026/mr-26-19.html | |
| Retrieved 16 Aug 2026 https://www.rba.gov.au/publications/smp/2026/aug/pdf/statement-on-monetary-policy-2026-08.pdf |
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