The Reserve Bank of Australia (RBA) is widely expected to raise the Official Cash Rate (OCR) by 25 basis points to 4.60% from 4.35% on Tuesday, following two consecutive meetings where rates were left unchanged. The decision is scheduled for 04:30 GMT, with the Monetary Policy Statement and a press conference by RBA Governor Michele Bullock to follow at 05:30 GMT [1].
This anticipated rate hike comes as Australia's inflation remains elevated. July's monthly Consumer Price Index (CPI) rose by 1.0%, surpassing expectations of 0.8%, while annual inflation held at 3.5%. The trimmed-mean inflation, a key measure of underlying price pressures, remained unchanged at 3.6%, reinforcing concerns about persistent inflation. The RBA has also flagged risks from higher energy prices, the Middle East conflict, strong investment, and ongoing domestic cost pressures. Governor Bullock recently noted that some upside inflation risks appear to be materialising [1].
Despite the inflationary pressures, the Australian economy is showing signs of slowing. Gross Domestic Product (GDP) grew by 0.4% in Q2, with annual growth at 2.1%, down from 2.5% in the previous quarter. The labor market is also cooling, as the Unemployment Rate rose to 4.6% in August, above forecasts and marking the highest level since late 2021. This creates a dilemma for the RBA, as it must balance persistent inflation with weakening growth and employment data [1].
Market participants are closely watching the RBA's forward guidance. If Governor Bullock signals that further rate hikes are possible, especially if inflation remains high, the Australian Dollar (AUD) could strengthen. Conversely, if she suggests that 4.60% may be the peak rate or emphasizes economic headwinds, the AUD could face selling pressure. However, the market reaction to the RBA decision may be short-lived, as the upcoming August CPI report on Wednesday could play a more decisive role in shaping expectations for future rate moves [1].
Technical analysis indicates that AUD/USD is currently holding at the 200-day Simple Moving Average, a key support level, with the 14-day Relative Strength Index near oversold territory, suggesting ongoing bearish momentum. Resistance is noted at the 100-day SMA [1].
CONCLUSION
The RBA is set to raise rates to 4.60% amid persistent inflation, despite signs of slowing growth and a cooling labor market. Market focus will be on Governor Bullock's guidance for future policy moves and the upcoming August CPI report, both of which could significantly influence the Australian Dollar's direction.