The Australian dollar slipped below $0.70 to a two-week low, even after the central bank delivered a widely expected interest rate increase. In a 6–3 majority decision, the Reserve Bank of Australia lifted its cash rate target by 25 basis points to 4.85%, the fifth hike this year and the highest level for borrowing costs since late 2008. Policymakers cited persistent, broad-based inflation, underpinned by elevated fuel and commodity prices, domestic capacity constraints and AI-driven demand for technology goods.
However, the move had largely been priced in, and the split vote, combined with the absence of more hawkish forward guidance, reduced expectations of another hike at the next meeting, triggering a sell-off in the currency. Market bets on tighter policy had surged last month, after hawkish rhetoric from the RBA was reinforced by a stronger-than-expected CPI reading. Attention now turns to Governor Michele Bullock’s press conference later today, where she is expected to outline the prospects for further rate adjustments.
