Aussie dollar experiences varied movement after the RBA

Breaking Down the RBA’s Latest Rate Decision

There’s a lot for traders to unpack following the Reserve Bank of Australia’s (RBA) recent announcement, with attention now turning to Governor Bullock’s upcoming press conference. For those who missed the news, the RBA increased its cash rate by 25 basis points, a move that was widely anticipated.

The central bank lifted the cash rate from 3.85% to 4.10%, but the decision was narrowly reached with a 5-4 vote—highlighting just how divided the board was. This close call is significant, especially given that Australia was already grappling with stubbornly high inflation before the recent escalation in US-Iran tensions. For context, the RBA also raised rates in February.

Following the announcement, the Australian dollar has shown mixed performance, with AUD/USD slipping 0.1% to 0.7060. The chart below illustrates the recent price movement:

The initial surge in AUD/USD failed to sustain a move above the 100-hour moving average at 0.7084, limiting any short-term bullish momentum. Currently, the pair is hovering near the 200-hour moving average at 0.7064. The key support level to watch on the downside remains 0.7000, which has held firm throughout the ongoing Middle East conflict and continues to serve as a crucial threshold.

Market Reactions and Policy Implications

Heading into the decision, markets had already priced in about an 82% probability of a rate hike, so the RBA’s move was no surprise. However, the narrow margin of the vote suggests a more cautious, or dovish, stance—especially considering policymakers were already contending with persistent domestic inflation before recent geopolitical developments.

The RBA also addressed the impact of the US-Iran conflict, stating:

“Developments in the Middle East remain highly uncertain, but under a wide range of possible scenarios could add to global and domestic inflation. In light of these considerations, the Board judged that inflation is likely to remain above target for some time and that the risks have tilted further to the upside, including to inflation expectations.”

Given the close vote, the outcome is less hawkish than some market participants might have hoped.

Despite this, the RBA’s statement indicates they remain open to further rate increases if necessary, though they are not making any firm commitments at this stage.

Looking Ahead: What’s Next for the RBA?

At present, no major central bank is likely to tighten policy prematurely in response to just a few weeks of heightened geopolitical risk. The RBA’s decision stands out, driven by domestic inflation concerns that predated the current conflict. Governor Bullock had already signaled the possibility of more rate hikes late last year, and the central bank followed through last month before taking another proactive step now.

Looking forward, the bar for another rate hike has likely been raised. Future moves will depend heavily on oil prices and the duration of the Middle East conflict. This latest increase brings the RBA’s policy stance more in line with other major central banks, but the likelihood of further action remains higher for Australia compared to, say, the European Central Bank.

Currently, markets are assigning roughly a 38% chance of another 25 basis point hike in May, with the next full hike expected by August. These will be the key milestones to monitor in the coming weeks.