RBA Interest Rate Decision Preview: Hold at 4.35% Expected as AUD/USD Tests Seven-Week High

Key Takeaways

• The Reserve Bank of Australia is widely expected to leave its cash rate unchanged at 4.35% on August 11.
• Softer second-quarter inflation has reduced the implied probability of an August rate increase to approximately 4%.
• AUD/USD is trading near 0.7055 ahead of the announcement, with the policy language and economic forecasts likely to matter more than the widely anticipated hold.
• A hawkish RBA could push the pair toward 0.7100, while a softer message may expose support around 0.7000.

The Reserve Bank of Australia is expected to leave its official cash rate unchanged at 4.35% on Tuesday, pausing for a second consecutive meeting as softer inflation and weaker housing conditions reduce the urgency for additional tightening.

The RBA will announce its monetary policy decision at 2:30 p.m. Australian Eastern Standard Time, equivalent to 4:30 GMT. The decision will be released alongside an updated Statement on Monetary Policy containing new forecasts for inflation, economic growth and unemployment. Governor Michele Bullock will hold a press conference one hour later.

As of this article’s publication, the decision had not yet been released. The RBA’s official schedule confirms the announcement time.

Softer Inflation Makes an RBA Hold Likely

The central bank raised rates three times earlier in 2026, taking the cash rate to 4.35%, before leaving policy unchanged at its June meeting.

Expectations for another increase weakened substantially after Australia’s second-quarter Consumer Price Index report showed underlying inflation rising less than anticipated.

The RBA’s preferred trimmed-mean measure increased 0.8% quarter over quarter, below the 0.9% market forecast. On an annual basis, trimmed-mean inflation edged up from 3.5% to 3.6%, but remained below the central bank’s previous forecast of 3.8%.

Headline inflation also slowed to 3.8% in June. Although both headline and underlying inflation remain above the RBA’s 2%-3% target, the data suggest that price pressures are no longer accelerating as rapidly as policymakers had feared.

Following the report, the market-implied probability of an August rate increase fell to approximately 4% from more than 20%. Expectations for a fourth increase before the end of 2026 also dropped below 50%, compared with roughly 84% before the inflation release.

All 31 economists surveyed by Bloomberg and 37 economists cited in a separate Reuters poll expect the RBA to keep the cash rate unchanged.

Inflation Risks Have Not Disappeared

A pause should not automatically be interpreted as the end of the tightening cycle.

Domestic inflation remains elevated, particularly in non-tradeable categories such as housing, insurance and other services. Non-tradeable inflation is running near 4.9% annually, indicating that locally generated price pressure remains stronger than the headline CPI figure suggests.

Energy prices are another risk. Lower fuel costs helped reduce headline inflation in June, but crude oil subsequently rebounded as uncertainty surrounding the Strait of Hormuz returned. Australia’s temporary fuel-excise discount also expired in early August, potentially adding to consumer prices during the coming months.

The RBA must therefore balance weaker inflation and deteriorating housing conditions against the possibility that energy costs, wages or government spending could prevent inflation from returning to target.

The central bank’s previous statement retained an explicit warning that it could raise the cash rate further if necessary. Investors will watch closely to see whether that language remains in Tuesday’s decision.

Updated Forecasts Will Be More Important Than the Rate

Because a hold is overwhelmingly expected, the Australian dollar’s reaction will probably depend on revisions to the RBA’s economic projections and Bullock’s assessment of future policy.

A reduction in the inflation forecasts, combined with weaker growth or higher unemployment projections, would indicate that the three earlier rate increases are restraining demand. Markets could then conclude that 4.35% represents the peak of the current cycle.

Commonwealth Bank expects the RBA to maintain the cash rate at 4.35% through the remainder of 2026 before delivering two reductions in 2027, according to CBA Economics.

A more hawkish forecast would challenge that view. If the RBA raises its inflation projections or emphasizes persistent domestic price pressure, investors may restore expectations for another increase later this year.

How the RBA Decision Could Affect AUD/USD

AUD/USD traded around 0.7055 shortly before the RBA announcement, close to its highest level in approximately seven weeks. The pair has fluctuated between roughly 0.6998 and 0.7071 during the past week.

The Australian dollar has been supported by reduced expectations for further RBA tightening without being significantly damaged by the change. At the same time, weak US employment data have lowered expectations for a Federal Reserve rate increase, limiting support for the US dollar.

A neutral decision that simply repeats the RBA’s previous language may generate only a brief market reaction. With a hold almost fully priced, traders would likely shift their attention to Bullock’s press conference and Wednesday’s US CPI report.

A hawkish hold—one that keeps another rate increase clearly on the table—could support Australian bond yields and push AUD/USD toward the psychological 0.7100 level. A sustained break above that threshold would expose the June high near 0.7145.

By contrast, a dovish hold accompanied by lower inflation forecasts or greater concern about housing and employment could weaken the Australian dollar. AUD/USD may initially retreat toward 0.7000, where the 21-day and 50-day moving averages converge.

Below 0.7000, the 200-day moving average near 0.6926 would become the next important support area.

US CPI Could Quickly Overtake the RBA as the Main Driver

Even if Tuesday’s RBA decision produces an immediate move in AUD/USD, its durability may be limited by the US inflation report scheduled for Wednesday.

A softer US CPI reading could weaken the dollar and allow AUD/USD to recover even if the RBA adopts a cautious tone. Conversely, stronger US inflation could revive Federal Reserve rate-hike expectations and push the pair lower despite a hawkish RBA statement.

The immediate question is therefore not whether the RBA holds rates, but whether policymakers still believe additional tightening may be necessary. That distinction will determine whether AUD/USD can break through 0.7100 or retreats toward the lower end of its recent range.