The Reserve Bank of Australia left its cash rate at 4.35% for a second straight meeting, and Governor Michele Bullock kept a hawkish tone that leaves another hike on the table. The Australian dollar dropped on the decision, then recovered during Bullock's press conference, as traders turned to the next day's US CPI report.
The Reserve Bank of Australia held its cash rate at 4.35% for a second straight meeting, pointing to an economic slowdown that matched its own expectations. Governor Michele Bullock nevertheless kept a hawkish tone at the post-meeting press conference and signaled that rates may need to rise again. That follows three rate hikes since January 2026 that added 75 basis points this year.
Yet the Australian dollar didn't stay quiet. Traders saw the currency drop on the rate decision before recovering during Bullock's press conference. Broader price action stayed mostly rangebound as markets awaited the US CPI report due the next day.
Inflation cools, but risks stay elevated
June's inflation data came in softer than forecast at 3.8% headline. Yet trimmed mean inflation tells a different story. It remains elevated and largely unchanged from the March quarter, with oil and related commodities still trading above pre-conflict levels because of the ongoing Middle East crisis. Bullock stressed that the central bank's primary target remains bringing inflation back to target, but she also pointed to a growing risk of further escalation in the Middle East that could push oil prices higher and feed through into inflation.
Board still weighs another hike
The RBA's board did not discuss a rate cut at this meeting, only a hike or a hold, and Bullock added that a hike is still in front of the board's mind. Still, 55% of economists now expect at least one further hike in 2026. At the same time, the RBA's updated forecasts revised inflation lower and unemployment higher, while trimming its 2027 cash rate assumption to imply potentially just one more increase if needed.
For now, a hold with a hawkish edge is as far as the RBA will commit.
Sources: ActionForex, Investinglive, ActionForex
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