RBA raised rates, but AUD is still being sold

EUR/AUD

Key zone: 1.6230 - 1.6280

Buy: 1.6300 (on the pullback following the retest of 1.6260); target 1.6400-1.6450; StopLoss 1.6250

Sell: 1.6200 (against a strong negative fundamental backdrop) ; target 1.6050-1.6000; StopLoss 1.6250

The market reacted not to the rate hike itself, but to the outlook for the next move, so AUD/USD fell below 0.7000 after the decision. The reason is a classic sell the fact: the hike was fully expected, while Michele Bullock provided no guarantee that the cycle would continue.

The market needs a fresh reason to buy.

A reminder:

The Reserve Bank of Australia raised the cash rate by 25 bps — from 4.35% to 4.60%. The decision was unanimous and marked the fourth rate hike in 2026. Funding costs reached their highest level in roughly 15 years. The decision had already been priced in.

The market immediately switched to the question: what comes after 4.60%?

The RBA governor’s answer was not hawkish enough to sustain the AUD rally. Only two options were discussed at the meeting — a 25 bps hike or keeping the rate unchanged. Bullock said the regulator was prepared to raise rates again if necessary, but at the same time emphasized that the measures already taken were still working their way through the economy and that additional tightening might prove unnecessary if inflation began to decline. A recession is currently not the base-case scenario.

That is exactly what the market sold.

And this is where a new factor emerged.

On the morning of September 30, the Australian Bureau of Statistics released the August CPI. Headline inflation accelerated to 4.0% y/y from 3.5% in July. On a monthly basis, CPI rose 0.4%. Core inflation, meanwhile, remained at 3.6%.

This is a very important combination: headline CPI accelerated sharply, but core inflation did not. This means that part of the new price pressure is primarily associated with energy and transportation rather than a broad acceleration in domestic inflation.

For the RBA, this creates an uncomfortable dilemma:

high headline inflation → risk of another hike; stable core inflation → argument in favor of a pause.

That is why the AUD did not receive an unambiguous bullish signal after the CPI release. The market is still only partially pricing in a November hike, although further tightening over a longer horizon remains priced in.

But the main source of new inflationary risk lies far beyond Australia.

The conflict in the Middle East has pushed energy prices higher, and the RBA explicitly noted that global energy prices are now significantly higher than assumed in its August forecasts. At the same time, pressure from domestic demand and capacity constraints is intensifying.

This creates an uncomfortable setup for the regulator:

oil up → transportation and electricity become more expensive → CPI up → inflation expectations rise → RBA is forced to keep rates high for longer.

The Australian economy is already showing the limits of its resilience.

• Australia’s GDP grew 0.4% q/q and 2.1% y/y in Q2. The ABS characterizes growth as subdued: household caution remains high, while a significant portion of the increase was linked to imports.
• Employment increased by 39,500 people in August, but unemployment rose from 4.5% to 4.6%. At the same time, full-time employment fell by 6,300, while part-time employment increased by 45,800.
• The property market continues to respond to high borrowing costs. The national Cotality index fell 0.9% in August, marking the fifth consecutive monthly decline. Since the correction began, housing values have fallen 3.6% from their March peak. In Sydney, the decline in August was 1.4%, while prices have already lost 7.1% from their February high.

This is an important counterargument for AUD bulls.

And What Is the Result?

The currency market is no longer satisfied with the current rate level. It needs confidence that the next move — 4.85% or higher — is becoming the base-case scenario. For now, that confidence is absent.

A high rate does support the interest-rate differential, but at the same time it undermines domestic demand through the mortgage channel. Therefore, every additional 25 bps is becoming an increasingly expensive tool for the RBA.

So the AUD will receive sustained support only when the market begins to raise its expected RBA terminal rate faster than expectations for U.S. yields are rising.

In the cross with the euro, the situation is more complicated. After the September hike, the ECB deposit rate stands at 2.50%, while the RBA cash rate is 4.60%. The gap is 210 bps in Australia’s favor. And because EUR/AUD is less liquid than AUD/USD, the Stop Loss on the cross should be set wider, but this should be compensated for by reducing the position size. Otherwise, normal intraday volatility can turn a correct medium-term idea into a loss.

So we act wisely and avoid unnecessary risks.

Profits to y’all!