RBA Surprised by Holding Rates: How Did AUD/USD React?

The decision, which followed cuts in February and May, surprised the financial markets that had nearly fully priced in a 25-basis-point reduction. So why did the RBA hold back when inflation appears to be easing, growth has slowed, and Australian major banks were aligned in expecting another round of monetary easing in July?

Markets Priced in a Cut—But the RBA Held Its Ground

Ahead of the meeting, both market participants and analysts were nearly unanimous in forecasting a rate cut.

The latest consumer price data showed inflation slowing more than expected, with the monthly CPI rising just 2.1% in the year to May—down from 2.4% in April and moving closer to the RBA’s 2–3% target band. At the same time, GDP data for the first quarter revealed weaker-than-expected economic activity, while soft retail sales and a cautious consumer mood pointed to a subdued domestic outlook.

According to The Guardian, markets were pricing in three consecutive rate cuts—one each in July and August, followed by a third by November—which would bring the cash rate down to 3.1% from the current 3.85%. The Big Four banks—Commonwealth Bank, Westpac, NAB, and ANZ—had similarly forecast a July rate cut, arguing that weaker inflation and softening business conditions gave the RBA room to act.

Yet the central bank chose to pause, and the rationale reveals a more cautious and nuanced approach.

Why the RBA Waited: Inflation Caution and Incoming Data

The RBA’s board voted 6–3 in favor of holding rates, marking a rare division among its members. RBA Governor Michele Bullock clarified that the split did not concern the direction of policy—which most agreed should continue easing—but the timing of further cuts. In the end, a majority chose to wait for additional confirmation that inflation was falling sustainably toward the midpoint of the target range.

Specifically, the board emphasized the need to assess the quarterly inflation report due on July 30, which will be critical in shaping the next decision at the August 12 meeting. While headline inflation has moderated, some members remain concerned about the potential for price pressures to rebound or prove more persistent than expected.

Governor Bullock also addressed speculation that the central bank was holding back to preserve room for maneuver in case of external shocks—such as a potential escalation in global trade tensions. “We’re not keeping our powder dry,” she said, pushing back on the idea that the RBA was preemptively holding back stimulus.

Trump’s Trade Agenda Clouds the Outlook

The RBA’s reference to “international developments” in its statement is not abstract. Global markets continue to digest President Donald Trump’s revived tariff push, which adds a layer of uncertainty to the global economic outlook.

On Monday, Trump sent formal notices to several countries imposing “reciprocal” tariffs, many of which are scheduled to take effect on August 1. Although China was immediately targeted, U.S. allies and major Australian trading partners such as Japan, South Korea, and Indonesia are also facing hefty tariffs—up to 32% in Indonesia’s case.

While the move stoked concerns about global trade fragmentation, not all voices in Australia view it negatively.

The Productivity Commission has argued that Australia could benefit from diverted capital flows caused by U.S. protectionism. Its modelling suggests that Australia’s GDP could rise by 0.37% due to increased foreign investment, as the country becomes relatively more attractive than heavily targeted economies.

Still, the broader uncertainty around U.S. trade policy and the potential for retaliatory measures remain key risks that could weigh on global sentiment and demand—factors the RBA is clearly monitoring closely.

Market Reaction: AUD/USD Up After Four Days Down

The Australian dollar has staged a modest recovery against the U.S. dollar, trading near 0.6535 at the time of writing, up approximately 0.70% on the day at the time of writing.

The price is currently sitting just above the Kijun-sen (baseline) and back above the Tenkan-sen (conversion line), signaling a potential short-term rebound. More importantly, the AUD/USD Forex pair remains above the Ichimoku Cloud (Kumo), which suggests that the broader trend is still marginally bullish. However, the price continues to struggle beneath the resistance zone around 0.6580, a level that has capped rallies multiple times over the past month.

The Chikou Span (lagging line) remains above the price action from 26 periods ago, but bounced back from the price with the RBA decision which supports a mildly bullish stance. The cloud ahead is relatively thin, indicating reduced momentum and a possible lack of conviction in either direction. If the pair breaks below 0.6485 and then the bottom of the cloud at 0.6446, this would shift the trend outlook decisively bearish. On the other hand, a successful breach and close above 0.6580 would confirm bullish continuation and possibly trigger upside extension toward 0.6650.

The RSI is currently at 53.03, slightly above the neutral 50 threshold. This suggests that momentum is currently balanced, with neither bulls nor bears in clear control. This suggests that momentum is currently balanced, with neither bulls nor bears in clear control. The RSI’s inability to break convincingly above 60 in recent rallies indicates that buyers are still hesitant, and sentiment remains fragile. For a convincing bullish continuation, the RSI would need to push above the 60–65 zone, supported by rising volume.

The MACD line is nearly flat and sitting just below the signal line, while the histogram shows a series of small bars close to the zero line. This configuration reflects consolidation and indecision. The lack of a clear crossover or histogram expansion suggests that momentum is weak and a directional move has yet to fully materialize.

Looking Ahead: All Eyes on July 30

In the wake of the RBA’s decision, attention turns to the next major data release: the quarterly inflation print due on July 30. That report will likely determine whether the RBA feels confident enough to resume its cutting cycle in August or continue to wait for clearer signals.

For now, the market still expects the cash rate to move lower over the coming months, but the path forward is less linear than previously assumed. The Australian dollar’s path will depend not only on domestic inflation but also on how global risks—especially trade tensions—play out in the weeks ahead. So stay tuned!

Sources: Wall Street Journal, RBA, ABS, Reuters, Productivity Commission, CNN, The Guardian