Brown Brothers Harriman’s (BBH) Elias Haddad reports that the Australian Dollar (AUD) fell after the Reserve Bank of Australia (RBA) delivered a widely expected 25 bps hike to 4.35% and signalled a data‑dependent pause. With trimmed mean inflation projected above target until mid‑2027 and growth downgraded, Haddad expects limited repricing of cash rate futures and sees AUD/USD struggling to sustain gains above 0.7200 despite Australia’s positive energy balance.

RBA hike but cautious outlook weighs

"RBA raised rates as expected and signaled a data-dependent pause. Governor Michele Bullock stressed “One reason to increase interest rates was to give ourselves space now to sit and see what happens.”"

"The RBA voted 8-1 to deliver a third consecutive 25bps hike to 4.35%. Cash rate futures implied 80% odds of a hike today. According to the RBA “inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations.”"

"Indeed, the RBA projects its policy-relevant trimmed mean inflation to remain above the bank’s 2-3% range until mid-2027 (vs. end-2026 previously), as fuel-related cost increases are passed through to consumer prices."

"Market participants expect the cash rate to increase by 35bps to 4.70% by the end of 2026. We see limited scope for a big upward adjustment in the cash rate futures curve for two reasons. First, the RBA slashed Australia’s growth outlook, now seeing real GDP growth running below potential throughout the forecast horizon. Second, the cash rate currently sits within, but near the top of, the range of model-based central estimates of the nominal neutral rate."

"AUD/USD will struggle to sustain a break above key resistance at 0.7200. Still, Australia’s positive energy balance (production minus consumption) will continue to offer AUD a relative edge versus EUR and JPY."

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