Standard Chartered reported that the RBA raised the cash rate to 4.35% at its 5 May meeting, decided by an 8-1 vote. The policy statement referred to upside risks to inflation.
The RBA also warned that a prolonged energy crisis could weaken demand and reduce inflation pressure, with possible effects on the labour market. The note also cited elevated energy prices and potential fuel shortages as risks.
Policy Signals And Market Reaction
At the press conference, Governor Bullock used a less hawkish tone than the statement. Standard Chartered’s baseline view is that the cash rate stays at 4.35% for the foreseeable future.
The report said further tightening is still possible but would face a high threshold. It added that the risk points to another hike in the second half of the year if growth remains above trend despite prior tightening.
The piece was produced with an AI tool and reviewed by an editor. It was attributed to the FXStreet Insights Team, which curates market observations and analyst commentary.
A year ago, we were watching the Reserve Bank of Australia lift the cash rate to 4.35% with a clear risk of another hike on the cards. The debate in May 2025 was whether surprisingly strong growth would force the RBA’s hand for one more move. Governor Bullock’s softened tone at the time only added to the market’s uncertainty.
Outlook For Rates And The Australian Dollar
That risk of another hike did materialize in the second half of 2025 as inflation proved stubborn, pushing the cash rate to its current level of 4.60%. Since that final move, the RBA has been on a prolonged pause. The tighter monetary policy has now had a full year to work its way through the economy.
Today, the picture has changed significantly, with the focus shifting from hikes to the timing of the first cut. The latest March quarter CPI data showed annual inflation has eased to 3.1%, which is moving closer to the RBA’s 2-3% target band. This is a marked improvement from the higher readings we saw throughout 2025.
Furthermore, economic activity has clearly slowed, with GDP growth for the last quarter of 2025 coming in at a tepid 0.2%. The labour market is also showing signs of loosening, as the unemployment rate has gradually ticked up from below 4% last year to a more recent figure of 4.2%. These statistics confirm that the past rate increases are now effectively constraining demand.
For traders, this means the implied volatility in AUD options may not fully price in the dovish pivot expected in the latter half of this year. We believe positioning for lower rates through instruments like interest rate swaps could be advantageous. The market is currently pricing a 50% chance of a 25 basis point cut by the fourth quarter of 2026.
This environment suggests looking at strategies that benefit from a weakening Australian dollar, especially against the US dollar. With the Federal Reserve signaling it may hold rates higher for longer, the policy divergence between the two central banks is becoming more pronounced. Considering AUD/USD put options or selling into rallies could be a prudent approach in the coming weeks.
