The RBA left the cash rate unchanged at 4.35% at today's meeting, a decision that will unlikely surprise too many.
Interest rate swaps had implied a 0% probability of a 25bp hike heading into the meeting and no economists were calling for one either. In many ways, today's outcome was fully priced.
RBA Governor Michele Bullock had already laid the groundwork in a recent speech, detailing that the policy setting was "a little restrictive", which many interpreted as code that interest rates would remain on hold for now.
The options market agreed. AUD/USD implied volatility was priced low before the announcement, suggesting that options traders expected few surprises from the meeting and a low probability of explosive price action. That proved to be the correct assumption.What does this mean for AUD/USD?
Markets take the decision in their stride
The reaction to both the statement and Governor Bullock's press conference has been calm and measured.
Australian bond yields fell around 4bp across the curve and AUD/USD followed, although most of the move lower through the day came ahead of the meeting as traders looked to trim positions going into the announcement.
In reality, what we are seeing is positioning being adjusted around the edges rather than a wholesale reassessment of the outlook.
If we had to pick a side, though, one could argue the market has interpreted the meeting as mildly dovish.
The statement suggests the Board is comfortable with the current policy setting and reasonably pleased with how the economy is responding to modestly restrictive rates.
Housing is softening, but the RBA isn't alarmed
One of the more interesting developments was the RBA's acknowledgement that momentum in the housing market has shifted, with prices now falling in some capital cities.
Of course, this is not solely a function of higher interest rates or the cost of capital. Recent fiscal policy changes from Treasurer Jim Chalmers and the Albanese government are also playing a role.
Governor Bullock said she is looking closely to see whether weakness in house prices translates into softer household spending through the wealth effect.
So far, however, there is little evidence that households are materially cutting back.
That distinction is important.
A weaker housing market alone is unlikely to trigger a policy response. A broad slowdown in consumption would.
The RBA still has a tightening bias, but markets are looking beyond it
The RBA retained a modest tightening bias, noting that increases in the cash rate target could still be required.
Inflation remains above target and uncertainty around oil supply and energy prices remains elevated.
However, Governor Bullock softened the message during the press conference.
She noted that inflation was already elevated before the recent geopolitical tensions and reiterated that the Bank's central scenario remains one where price pressures gradually ease over time.
Interest rate swap markets now price a 28% probability of a 25bp hike at the 11 August meeting and a 50% chance of a hike by year-end.
That market pricing seems fair given the RBA's forward guidance, although my own base case is that the RBA has probably finished hiking rates in this cycle.
Three data releases will decide the August meeting
Market expectations for the August RBA meeting will be heavily influenced by the incoming economic data.
The first major release comes on 24 June with the May monthly CPI report due.
The following day, the May labour market report is released.
But the biggest event on the calendar is the Q2 CPI release on 29 July.
That inflation print will likely determine whether August becomes a genuine live meeting or whether the RBA remains comfortably on hold.
Growth is slowing, but Australia is not heading for recession
It's not just housing that is reacting to higher rates.
Aggregate demand, as seen in the Q1 GDP figures released earlier this month, was underwhelming.
Household demand and consumption are expected to soften further into the second half of the year.
That said, we are not seeing recessionary conditions emerge.
A moderation in growth feels logical and is broadly what markets are expecting.
Against that backdrop, it feels increasingly likely that the current cash rate of 4.35% marks the peak of this cycle.
What does this mean for AUD/USD?
This is where things become more complicated.
There are several competing forces pulling on the Australian dollar.
For much of 2026, AUD/USD enjoyed a strong uptrend, supported by relative growth dynamics, a more hawkish RBA and favourable terms of trade.
That backdrop has changed.
The Australian dollar has lost some of its mojo.
After trading above 73 cents, AUD/USD has retreated towards 70 cents and now looks much closer to fair value.
What was once a tactical long and arguably the standout trade in G10 FX has shifted to a more neutral outlook.
Relative growth rate currently favours the USD upside, as do relative terms of trade and interest rate expectations.
Why the Australian dollar still has buying support
The Australian dollar is not without support.
The ongoing resilience in the Chinese renminbi and the strength in global equity markets have helped underpin sentiment.
At the same time, US technology and AI stocks are finding renewed momentum after their recent pullback.
If US exceptionalism in equities reasserts itself, that would likely support the US dollar and potentially cap further upside in AUD/USD.
Add in uncertainty around whether the Fed is truly done hiking and whether the RBA is genuinely finished, and it is no surprise that AUD/USD has become a range-trading market.
The better opportunities may be in the crosses
For me, the more compelling opportunities may emerge outside AUD/USD.
AUD/CAD, AUD/JPY, EUR/AUD and GBP/AUD all offer cleaner relative value opportunities as growth, inflation and monetary policy dynamics diverge across economies.
Until the market develops a stronger relative view and a more persistent trend emerges, two-way trading feels like the most likely base case.
For now, trading the ranges is how I'll be approaching the Australian dollar given the current technical dynamics.
