Market Reaction to RBA Decision

The Australian Dollar reacted to the Reserve Bank of Australia’s (RBA) decision, with the AUD/USD pair increasing by 0.33% that day. Data from the Australian Bureau of Statistics revealed that the Consumer Price Index rose by 3.0% in August compared to last year. This information significantly shaped market expectations about a potential interest rate cut in November, which is now estimated at 50%, down from 70%. Earlier this month, the RBA decided to keep the cash rate at 3.6%. This sets the tone for the coming weeks. The central bank has clearly indicated that its decision in November will depend on upcoming inflation data. As a result, there is a specific period of opportunity and risk leading up to the quarterly CPI report on October 29. Governor Bullock’s comments show that the central bank is cautiously optimistic but not ready to commit to a specific plan. Saying that policy is “a little bit restrictive” and that rate cuts “could be” considered leaves traders in a state of uncertainty. This ambiguity is crucial, as the market is likely to respond strongly to any data that may shift the RBA’s neutral position. Historically, inflation has dropped significantly from a high of 7.8% in late 2022, which justifies the RBA’s decision to pause. However, the recent CPI data for August 2025 showed a slight rise to 3.0%, reminding us that the final stretch to control inflation is often the hardest. The persistence of inflation in services, emphasized by the Governor, remains the main hurdle for any potential rate cuts.

Implications for Traders

Recent economic data complicates the situation and reinforces the RBA’s cautious approach. The unemployment rate rose to 4.1% in August, indicating a softening labor market as planned. Additionally, retail sales for August were flat, suggesting that higher interest rates over the past couple of years are finally affecting consumer demand. For traders focused on the AUD/USD, the growing divergence in policies between Australia and the United States is becoming clearer. The US Federal Reserve has adopted a more hawkish stance, which could put downward pressure on the Australian dollar. As of late September, market forecasts suggest a roughly 40% chance of an RBA rate cut in November, a figure that will likely change significantly with each new data release. Create your live VT Markets account and start trading now.

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