The Reserve Bank of Australia (RBA) kept its cash rate unchanged at 4.35%, extending a policy pause that has been in place since November 2023. The decision, widely anticipated by markets, was reinforced by an analysis from TD Securities flagging an extended period of steady rates as the central bank balances sticky inflation against a softening economic backdrop.
Ahead of the announcement, the Australian Dollar had been trading near two-month highs around 0.7088 against the US Dollar, supported by improved risk sentiment and firmer commodity prices. In the immediate aftermath, the currency showed a muted reaction, hovering within a narrow range as traders absorbed the central bank's cautious guidance.
Inflation and economic outlook remain key. Australia’s annual inflation moderated to 3.6% in Q1 2025 from 4.1% previously, still above the 2–3% target band. Services inflation remains sticky, and while the labour market is resilient with unemployment at 4.0%, leading indicators suggest a slowdown in hiring. The RBA’s own GDP growth forecast stands at 1.8% for 2025, below trend.
Market implications. TD Securities warned that the longer the pause persists, the greater the risk of a policy error if growth continues to decelerate. For the AUD/USD, key support is seen near 0.6500, with resistance at 0.6700. The currency’s near-term path will likely depend more on Federal Reserve moves and global commodity trends than on domestic policy shifts. Australian borrowers face extended periods of elevated lending costs, while equity markets reacted positively, with the ASX 200 holding recent gains.
