Reserve Bank of Australia holds steady, and its tone remains even-handed
The Reserve Bank of Australia (RBA) maintained its cash rate at 4.35%, emphasizing a prudent stance amid persistent inflation pressures and slowing growth. Per the full note from ing-think, the RBA's equanimous tone allows for a data-dependent approach as it navigates the complexities of economic indicators. As the market evaluates the RBA's cautious yet adaptive strategy, expectations favor a gradual improvement in the Australian dollar's (AUD) prospects in the second half of the year. Currently, consensus suggests a median target for AUD/USD at 0.6700 by March 2026, reflecting a diverse range of forecasts from various institutions.
What the desk is arguing
The desk assesses that the RBA's decision to hold rates steady indicates a careful balancing act between inflation and economic growth. The Board's acknowledgment of 'sticky inflation' aligns with broader market expectations of ongoing policy restraint, signaling potential for AUD upside in the latter half of 2026.
The RBA's commitment to maintaining a restrictive policy underlines the importance of upcoming economic data as it considers any future adjustments. Given that inflation is projected to return to target only slowly, with indicators suggesting a tempered disinflation path driven by easing global pressures, the AUD may glean support from these dynamics.
Where it sits in our coverage
Our internal consensus target for AUD/USD stands at 0.6700, consistent with forecasts from several firms that anticipate a cautious recovery for the currency through the end of 2026. Specific targets include: - danskebank: Dec-26 target of 0.6900 - hsbc: Dec-26 target of 0.7000 - stanchart: Dec-26 target of 0.7500
Overall, our stance is somewhat cautious, positioning toward the lower end of the forecast spectrum, particularly when compared to stanchart with a higher target of 0.7500 for March 2026.
How other firms see it
Aligned firms such as danskebank, hsbc, and stanchart maintain a positive outlook for the AUD, reflecting expectations for potential recovery in the currency as global economic conditions stabilize. Conversely, firms like bofa are more pessimistic, with a target that suggests diminished confidence in the AUD's near-term performance.
The trajectory of AUD/USD is also closely tied to broader macroeconomic indicators, including the monetary policy direction of the Federal Reserve and developments in commodity prices like iron ore, which may influence Australian export performance and, by extension, the AUD's value.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The RBA's steady cash rate at 4.35% reflects a balanced assessment of inflation and economic growth.
- 02Inflation remains high, with a slow return to target expected only by mid-2028, reinforcing a cautious policy stance.
- 03Consensus targets for AUD/USD center around 0.6700, indicating mixed expectations among market players.
- 04Easing global pressures and gradual economic improvements support potential for AUD gains in the latter half of the year.
Market implications
Traders should monitor AUD/USD around the current spot of 0.7060 for potential upward movements, particularly as conditions improve in the global environment. The consensus forecasts indicate levels may rise toward 0.7000 by December 2026, signaling bullish sentiment among select firms ahead of upcoming releases of key economic data.
Risks to this view
A reversal in the RBA's policy stance, driven by a significant uptick in inflation or a more severe economic downturn, could undermine positive AUD sentiment. Additionally, escalations in geopolitical tensions that impact commodity markets may weigh heavily on the Australian dollar's outlook.
Older quick take Quick take 08:23 Rates Australia Reserve Bank of Australia holds steady, and its tone remains even-handed The Reserve Bank of Australia left rates unchanged at 4.35%, viewing inflation as sticky but broadly in line with its base case. This allows policy to remain restrictive and data dependent. While risks persist, easing global pressures and a gradual slowdown support expectations the RBA will stay on hold for now.
That shouldn't prevent AUD gains in 2H Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Deepali Bhargava Regional Head of Research, Asia-Pacific Francesco Pesole FX Strategist RBA Policy Reaction: Hold at 4.35% in line with expectations The Reserve Bank of Australia (RBA) left the cash rate unchanged at 4.35% in a unanimous decision, in line with market expectations. The Board acknowledged that financial conditions have tightened meaningfully and that economic growth is slowing broadly as anticipated. Communication was balanced, reflecting softer growth dynamics alongside still-high inflation.
While the economy is cooling, underlying inflation remains elevated, reinforcing the need for continued policy restraint. Sticky inflation but broadly in line with base case Looking ahead, the RBA signalled that policy is firmly in restrictive territory and reiterated its data-dependent stance as it assesses the lagged effects of past tightening. The Board does not appear overly concerned about the unemployment rate rising toward roughly 4.5%, viewing it as consistent with a gradual cooling in growth.
Inflation is expected to return to target only slowly, with the current trajectory pointing to mid-2028. While persistent excess demand, supply-side constraints, and weak productivity continue to weigh on the inflation outlook, we see scope for a faster disinflation path. This would be driven by improving global dynamics, including easing geopolitical tensions, which could support growth via stronger consumer sentiment and reduce pressure on the RBA to tighten further.
Overall, the Board remains wary of sticky underlying inflation despite recent downside surprises in headline measures. While risks persist and further rate hikes cannot be ruled out if data disappoints, inflation has broadly tracked the RBA’s baseline scenario. Combined with a potentially more benign global backdrop, this supports our view that the RBA is likely to remain on hold for the rest of the year.
Holding pattern not a hindrance to AUD Markets looked through Governor Bullock’s threats of further hikes, with short-term rates inching lower. That added pressure on AUD during a session in which USD is reclaiming its post-Iran-deal losses. We have recently revised our AUD/USD call lower , trimming our year-end target to 0.73 amid a radically changed Federal Reserve story.
Until last month, we expected a Fed cut in 2026; we now look for a prolonged hold, with risks tilted towards a hike through 2Q27. For now, and likely through the summer, the Fed remains the key driver for AUD/USD. If data and Fedspeak validate the market’s hawkish pricing, upside in the pair should remain limited.
The USD would continue to benefit from its fundamental appeal amid deteriorating global liquidity and sentiment. Further out, we expect some dovish repricing of the Fed in the second half as the US domestic narrative softens. That should gradually shift focus back to AUD fundamentals - terms of trade, carry, and the growth and fiscal mix.
We don't think another RBA hike is a necessary condition for AUD/USD to return to 0.73 this year. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
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