• The Reserve Bank of Australia is expected to hold the interest rate steady at 4.35% in June.
• RBA Governor Bullock’s words to be dissected for fresh cues on the monetary policy outlook.
• The Australian Dollar is primed for intense volatility on the RBA policy announcement.

The Reserve Bank of Australia (RBA) is widely expected to leave the Official Cash Rate unchanged at 4.35% when it announces its monetary policy decision on Tuesday, marking a pause after three consecutive rate hikes delivered earlier this year.

The decision will be announced at 04:30 GMT, accompanied by the Monetary Policy Statement (MPS). RBA Governor Michele Bullock’s press conference will follow at 05:30 GMT.

The RBA policy announcement and Bullock’s presser could trigger a big reaction in the Australian Dollar (AUD), as markets eagerly await signals on the bank’s path forward on interest rates.

RBA pauses, end of the tightening cycle?

While inflation remains stubbornly elevated and continues to pressure households, a growing number of signals suggest the Australian economy may be losing momentum. Higher borrowing costs have started to weigh on consumer demand and early signs of labour market cooling are emerging.

Data from the Australian Bureau ​of Statistics (ABS) showed that Gross Domestic Product (GDP) grew 0.3% quarter-over-quarter (QoQ) in the first three months of the year, compared with a forecast of 0.5% and decelerating from 0.9% in the prior quarter. Annual ​growth steadied at 2.5% in the same period, below the 2.7% expected.

Meanwhile, the country’s Unemployment Rate jumped to 4.5% in April, the highest since September. The monthly Consumer Price Index (CPI) inflation slowed to 0.4% in April from 1.1% in March, while the annual pace also declined to 4.2% from 4.6%.

The central bank, therefore, finds itself balancing inflation that remains above target and an economy that appears to be slowing down.

“Markets now imply just a 22% probability of an August RBA hike, down from 80% a month ago, and just 11 bps of tightening this year as higher interest rates have started to slow economic activity,” per Reuters.

The shift in sentiment accelerated after National Australia Bank (NAB) ditched its peers by suggesting the RBA's next move could eventually be a rate cut rather than another hike.

Three of the four major banks, NAB, Commonwealth Bank of Australia (CBA), and Australia and New Zealand Banking Group (ANZ), expect the RBA to leave the cash rate at 4.35% for the remainder of 2026.

For now, policymakers are likely to maintain a cautious tone, acknowledging persistent inflation pressures while emphasizing increased uncertainty surrounding growth, employment and household spending.

The main focus will be on whether the reopening of the Strait of Hormuz is enough to calm the central bank’s inflation concerns and to signal a pause in the current tightening cycle.

"It'll be about the little clues as to whether the cycle is over or it's still alive - that's going to be really important for both the Aussie and the kiwi markets," said Imre Speizer, a strategist at Westpac.

How will the Reserve Bank of Australia’s decision impact AUD/USD?

The AUD has rebounded firmly against the US Dollar (USD) in the countdown to the RBA event risk.

The key market takeaway will therefore be any change in the RBA's forward guidance. A statement retaining a tightening bias could revive expectations for an August rate increase and support the Aussie Dollar.

Conversely, any indication that the central bank is becoming more concerned about growth risks could reinforce market pricing for a prolonged pause and weigh down on the AUD.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.

“The pair is challenging the key 100-day Simple Moving Average (SMA) on the road to recovery. The 14-day Relative Strength Index (RSI) has bounced off the oversold territory, but remains in the bearish zone, suggesting that sellers are likely to retain control.”

“On the topside, initial resistance emerges at the 100-day SMA near 0.7084, followed by the 21-day SMA around 0.7116 and the 50-day SMA close to 0.7143, levels that would need to be reclaimed to ease the current downside pressure. On the downside, the 200-day SMA at roughly 0.6844 offers the next major support, with a sustained break below that long-term average likely opening the door to a deeper retracement,” Dhwani adds.