HSBC analysts note that the Reserve Bank of Australia raised its cash rate to 3.85% and revised growth and inflation forecasts higher, assuming the rate reaches 4.2% by end-2026. HSBC economists see the stance as hawkish and expect another 25bp hike in 3Q26. They add that the Australian Dollar’s recent strength versus the Dollar looks stretched and AUD/USD may consolidate, with external drivers dominating near-term moves.

RBA tightening but AUD rally stretched

"On 3 February, the Reserve Bank of Australia (RBA) increased its cash rate by 25bp to 3.85%, in line with market expectations."

"The RBA also revised its neartermgrowth, and inflation forecasts upwards to 2.1% and 4.2% by June 2026(previously 1.9% and 3.7%), assuming the cash rate reaches 4.2% by end-2026."

"Our economists view the RBA’s overall stance as fairly hawkish, indicating potentialfor further tightening, and anticipate an additional 25bp increase in 3Q26."

"The AUD’s recent rally looks a bit stretched, up c3.5% against the USD year-to-date (Bloomberg, 6 February)."

"Consequently, AUD-USD is likely to consolidateover the coming weeks, with external factors − rather than rate differentials − driving moves over the near term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)