RBA Unanimously Holds Rate at 4.35% in August, AUD Falls Below $0.705
Taylor Wilson
The RBA held its cash rate at 4.35% by unanimous vote in August, trimming its inflation forecasts slightly — yet the Aussie dollar slid below $0.705, signaling markets see rate cuts as still distant.
Rate unchanged — so why did the Aussie fall?
The 4.35% hold was fully priced in — but "as expected" also meant no dovish surprise.
The RBA's quarterly Statement on Monetary Policy nudged inflation forecasts lower, yet explicitly warned that inflation risks remain tilted to the upside.
This means → markets had bet on softer language to pave the way for cuts; they got nothing, and the Aussie broke below $0.705.
What changed in the inflation forecasts?
CPI (the headline measure of consumer prices): peaked at 3.9% in Q2, expected to fall to 3.6% by year-end and 2.6% by end-2027.
Core inflation (trimmed mean — strips out extreme price swings to show "true" underlying inflation): from a peak of 3.6%, forecast to ease to 3.3% by year-end and 2.4% by mid-2028.
In plain terms = inflation is heading down, but it won't re-enter the 2%–3% target band until the second half of next year — giving the RBA every reason to wait.
Can the economy and jobs hold up?
GDP growth is forecast to slow to 1.4% by year-end, below trend — though slightly above the prior estimate, supported by a data-center investment boom and faster population growth.
Unemployment stands at 4.4%; the RBA now expects it to peak at 4.8% (previously 4.7%) around mid-2028.
This means → the labor market is loosening faster than the RBA previously thought, which helps ease inflation pressure — but also confirms the economy is cooling.
What risks are keeping the RBA cautious?
External risk: Middle East tensions pushing up oil prices — the RBA flagged this as the main upside inflation risk.
Business side: liaison surveys show firms still face elevated cost pressure, but rising consumer price sensitivity is limiting their ability to pass costs through to final prices.
Housing has cooled more than expected, dragging on household spending and residential investment; housing credit growth is forecast to slow further.
What comes next?
The NAB Business Confidence Index held at −6 in July — firms remain downbeat, reinforcing the broader slowdown narrative.
The RBA's own technical assumptions pencil in a cash rate of 4.4%–4.5% on average over the next two years, in line with market pricing. In plain terms = the RBA itself does not expect to cut any time soon.
The next market catalyst: Governor Michele Bullock testifies before parliament on Friday — her comments may further clarify the rate-cut timeline.
Content is for reference only, not financial advice.