The Reserve Bank of Australia (RBA) is on track to keep the Official Cash Rate (OCR) steady at 4.35% for the second consecutive meeting on Tuesday.
The decision will be announced at 04:30 GMT, accompanied by the Monetary Policy Statement (MPS) and updated economic forecasts. RBA Governor Michele Bullock’s press conference will follow at 05:30 GMT.
The Australian Dollar (AUD) is set to experience volatility around the RBA policy announcement and Bullock’s press conference, with markets focused less on the widely expected hold and more on signals about the central bank’s next policy move, as softer-than-expected inflation data could cloud the central bank’s outlook on interest rates.
RBA set for another pause, what’s next?
While markets had previously priced in the possibility of another rate hike in August, expectations have shifted dramatically following a softer-than-expected second-quarter (Q2) inflation report, reducing the urgency for the RBA to tighten policy again.
The turning point came with Australia’s latest Consumer Price Index (CPI) report, which showed underlying inflation slowing more than expected.
The RBA’s preferred Trimmed Mean CPI rose 0.8% quarter-on-quarter (QoQ) in the second quarter, below market expectations for a 0.9% increase. Annual Trimmed Mean inflation accelerated only modestly to 3.6% from 3.5%, remaining below the central bank’s own 3.8% forecast.
Following the CPI release, Bloomberg data showed that the implied probability of a rate hike in August collapsed to just 4%, down from more than 20% before the data.
Expectations for a fourth rate hike later this year also receded sharply, with market pricing falling below 50%, compared with roughly 84% pre-data release.
This swift repricing suggests markets increasingly believe the RBA has room to remain patient, while assessing whether recent signs of easing inflation are sufficient to pause the tightening cycle.
Even though headline inflation benefited from lower fuel prices during June, Oil prices moved higher again after a renewed outbreak of conflict involving Iran during July.
Additionally, Australia’s temporary fuel excise discount expired on August 2, removing a temporary source of downward pressure on fuel prices and potentially adding fresh upside risks for inflation in the months ahead.
Against this backdrop, the RBA is likely to adopt a cautious tone, maintaining a data-dependent approach, as policymakers continue to balance slowing economic momentum against still-elevated price pressures.
Additionally, the RBA could consider the updated inflation and growth forecasts and whether the likely reopening of the Strait of Hormuz is enough to calm inflation concerns and to signal a pause in the current tightening cycle.
RBA seen on hold as summer lull keeps focus on data
Analysts at Rabobank note that attention turns to Australia on Tuesday, when “the Reserve Bank of Australia sets rates.” They acknowledge that they are “not entirely convinced that the three hikes delivered since the start of the year are enough to mop up excess demand in the Australian economy, but the RBA seems to hope it is.” Even so, Rabobank expects policymakers to “hold rates unchanged this week,” a view they point out is shared by “all other 31 economists surveyed by Bloomberg.” More broadly, the bank highlights that “it’s peak summer, with a light data calendar and most central bankers on holiday,” adding that “the Fed’s Hammack is an exception.”
How will the Reserve Bank of Australia’s decision impact AUD/USD?
The AUD is hanging close to seven-week highs against the US Dollar (USD) ahead of Tuesday’s RBA policy announcements.
With a rate hold largely priced in, the policy statement and updated forecasts, alongside Governor Bullock’s message, will likely matter more than the rate decision itself.
If Bullock and the MPS acknowledge softer inflation while emphasizing patience and data dependence, that could reinforce expectations that interest rates have peaked, potentially weighing on the Aussie Dollar and the AUD/USD pair.
Alternatively, if inflation forecasts are revised higher, followed by Bullock’s still concerning remarks on inflation, it could leave further rate hikes on the table, providing fresh support to AUD/USD.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.
“The Aussie pair trades firmly above the short- and medium-term moving averages. The 21-day and 50-day Simple Moving Averages (SMAs) bullish crossover underpins the advance, while the 200-day SMA at 0.6926 reinforces the broader bullish structure. The Relative Strength Index (RSI) near 60 leans higher but remains shy of overbought territory, suggesting upside momentum remains constructive on the daily chart.”
“On the topside, immediate resistance is located at the 0.7100 round level, which could act as the next pivot for trend continuation. Further up, the June 5 high near 0.7145 could be tested. On the downside, initial support is seen around 0.7000, the confluence zone of the 21-day SMA and 50-day SMA. Below that, the 200-day SMA at 0.6926 could act as a deeper line of defense,” Dhwani adds.
Australian Dollar Price This Month
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this month. Australian Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.23% | -0.20% | -0.67% | -0.44% | -0.53% | -0.16% | 0.43% | |
| EUR | 0.23% | 0.02% | -0.44% | -0.19% | -0.29% | 0.07% | 0.66% | |
| GBP | 0.20% | -0.02% | -0.43% | -0.20% | -0.33% | 0.06% | 0.65% | |
| JPY | 0.67% | 0.44% | 0.43% | 0.26% | -0.01% | 0.30% | 1.02% | |
| CAD | 0.44% | 0.19% | 0.20% | -0.26% | -0.14% | -0.19% | 0.95% | |
| AUD | 0.53% | 0.29% | 0.33% | 0.00% | 0.14% | 0.39% | 1.00% | |
| NZD | 0.16% | -0.07% | -0.06% | -0.30% | 0.19% | -0.39% | 0.60% | |
| CHF | -0.43% | -0.66% | -0.65% | -1.02% | -0.95% | -1.00% | -0.60% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.