RBA set to hike interest rate to 4.60% in September as inflation remains elevated
- The Reserve Bank of Australia is set to raise the interest rate to 4.60% in September.
- RBA Governor Bullock’s words and the policy statement are in focus for cues on further rate hikes.
- The Australian Dollar is expected to experience heightened volatility around the RBA event risk.
The Reserve Bank of Australia (RBA) is widely expected to raise the Official Cash Rate (OCR) by 25 basis points (bps) to 4.60% from 4.35% on Tuesday, after keeping rates unchanged at its previous two meetings
The decision will be announced at 04:30 GMT, accompanied by the Monetary Policy Statement (MPS), and followed by RBA Governor Michele Bullock’s press conference at 05:30 GMT.
The Australian Dollar (AUD) braces for a big reaction to the RBA policy announcement and Bullock’s press conference, as underlying inflation remains elevated while labor market conditions are easing.
Focus on RBA Governor Bullock
With a rate hike all but certain, what Governor Michele Bullock says about the next interest rate move will be the main driver.
Australia’s July inflation came in hotter than expected. Monthly Consumer Price Index (CPI) jumped 1.0% versus expectations of 0.8%, while annual inflation remained elevated at 3.5%. More importantly, trimmed-mean inflation remained unchanged at 3.6%, reinforcing concerns that underlying price pressures remain persistent.
The RBA also highlighted risks from higher energy prices, the Middle East conflict, strong investment and persistent domestic cost pressures. Governor Bullock recently said some upside inflation risks appeared to be materialising.
Australian Gross Domestic Product (GDP) increased 0.4% in Q2. However, the economy is losing momentum, with annual GDP growth of 2.1% in the same period, down from 2.5% in the prior quarter.
Meanwhile, the Unemployment Rate rose to 4.6% in August, above forecasts for a steady 4.5% and the highest level since late 2021.
And that creates the RBA's dilemma: inflation is still too high, but growth and the labor market are cooling.
How will the Reserve Bank of Australia’s decision impact AUD/USD?
If the RBA delivers the 25 bps rate hike and Bullock signals that another increase remains possible, especially if inflation stays elevated, the AUD could receive the much-needed lift.
On the other hand, the Australian Dollar could come under intense selling pressure if Bullock signals that 4.60% could be the peak, or emphasizes weaker growth and a cooling labor market.
However, the reaction to the RBA decision could be short-lived as Wednesday’s August CPI report could prove more important than the monetary policy announcement, as it could determine whether markets price in another RBA hike after September.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.
“AUD/USD is holding right on the 200-day Simple Moving Average (SMA), which acts as a pivotal level after the latest slide. The 14-day Relative Strength Index around 35 is edging toward oversold territory, suggesting bearish momentum persists.”
“On the topside, initial resistance is located at the 100-day SMA around 0.7068, followed by the 50-day SMA at 0.7094 and then the faster 21-day SMA at 0.7133, which together define the main recovery hurdles for any corrective bounce. On the downside, a sustained daily close below the 200-day SMA at 0.7026 would expose the recent lows and open the path for a deeper decline toward the $0.6950 psychological level, followed by the 0.6900 round level,” Dhwani adds.
Economic Indicator
RBA Interest Rate Decision
The Reserve Bank of Australia (RBA) announces its interest rate decision at the end of its eight scheduled meetings per year. If the RBA is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Australian Dollar (AUD). Likewise, if the RBA has a dovish view on the Australian economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for AUD.
Read more.Next release: Tue Sep 29, 2026 04:30
Frequency: Irregular
Consensus: 4.6%
Previous: 4.35%
Source: Reserve Bank of Australia
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.