RBA set for first interest-rate pause of 2026 as bets of further hikes weaken
- The Reserve Bank of Australia is expected to hold the interest rate steady at 4.35% in June.
- RBA Governor Bullock’s words to be dissected for fresh cues on the monetary policy outlook.
- The Australian Dollar is primed for intense volatility on the RBA policy announcement.
The Reserve Bank of Australia (RBA) is widely expected to leave the Official Cash Rate unchanged at 4.35% when it announces its monetary policy decision on Tuesday, marking a pause after three consecutive rate hikes delivered earlier this year.
The decision will be announced at 04:30 GMT, accompanied by the Monetary Policy Statement (MPS). RBA Governor Michele Bullock’s press conference will follow at 05:30 GMT.
The RBA policy announcement and Bullock’s presser could trigger a big reaction in the Australian Dollar (AUD), as markets eagerly await signals on the bank’s path forward on interest rates.
RBA pauses, end of the tightening cycle?
While inflation remains stubbornly elevated and continues to pressure households, a growing number of signals suggest the Australian economy may be losing momentum. Higher borrowing costs have started to weigh on consumer demand and early signs of labour market cooling are emerging.
Data from the Australian Bureau of Statistics (ABS) showed that Gross Domestic Product (GDP) grew 0.3% quarter-over-quarter (QoQ) in the first three months of the year, compared with a forecast of 0.5% and decelerating from 0.9% in the prior quarter. Annual growth steadied at 2.5% in the same period, below the 2.7% expected.
Meanwhile, the country’s Unemployment Rate jumped to 4.5% in April, the highest since September. The monthly Consumer Price Index (CPI) inflation slowed to 0.4% in April from 1.1% in March, while the annual pace also declined to 4.2% from 4.6%.
The central bank, therefore, finds itself balancing inflation that remains above target and an economy that appears to be slowing down.
“Markets now imply just a 22% probability of an August RBA hike, down from 80% a month ago, and just 11 bps of tightening this year as higher interest rates have started to slow economic activity,” per Reuters.
The shift in sentiment accelerated after National Australia Bank (NAB) ditched its peers by suggesting the RBA's next move could eventually be a rate cut rather than another hike.
Three of the four major banks, NAB, Commonwealth Bank of Australia (CBA), and Australia and New Zealand Banking Group (ANZ), expect the RBA to leave the cash rate at 4.35% for the remainder of 2026.
For now, policymakers are likely to maintain a cautious tone, acknowledging persistent inflation pressures while emphasizing increased uncertainty surrounding growth, employment and household spending.
The main focus will be on whether the reopening of the Strait of Hormuz is enough to calm the central bank’s inflation concerns and to signal a pause in the current tightening cycle.
"It'll be about the little clues as to whether the cycle is over or it's still alive - that's going to be really important for both the Aussie and the kiwi markets," said Imre Speizer, a strategist at Westpac.
How will the Reserve Bank of Australia’s decision impact AUD/USD?
The AUD has rebounded firmly against the US Dollar (USD) in the countdown to the RBA event risk.
The key market takeaway will therefore be any change in the RBA's forward guidance. A statement retaining a tightening bias could revive expectations for an August rate increase and support the Aussie Dollar.
Conversely, any indication that the central bank is becoming more concerned about growth risks could reinforce market pricing for a prolonged pause and weigh down on the AUD.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.
“The pair is challenging the key 100-day Simple Moving Average (SMA) on the road to recovery. The 14-day Relative Strength Index (RSI) has bounced off the oversold territory, but remains in the bearish zone, suggesting that sellers are likely to retain control.”
“On the topside, initial resistance emerges at the 100-day SMA near 0.7084, followed by the 21-day SMA around 0.7116 and the 50-day SMA close to 0.7143, levels that would need to be reclaimed to ease the current downside pressure. On the downside, the 200-day SMA at roughly 0.6844 offers the next major support, with a sustained break below that long-term average likely opening the door to a deeper retracement,” Dhwani adds.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Economic Indicator
Consumer Price Index (MoM)
The Monthly Consumer Price Index (CPI), released by theAustralian Bureau of Statistics on a monthly basis, measures the changes in the price of a comprehensive basket of goods and services acquired by household consumers. The MoM reading compares prices in the reference month to the previous one. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
Read more.Last release: Wed May 27, 2026 01:30
Frequency: Monthly
Actual: 0.4%
Consensus: 0.6%
Previous: 1.1%
Source: Australian Bureau of Statistics
Author
FXStreet Team
FXStreet
Composed of a group of economic journalists and FX experts, the FXStreet content team produces and oversees all content published on FXStreet. It provides a purely journalistic approach to the Forex market.
