The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.60% on September 29, 2026. The move took the main policy rate to its highest level in 15 years.
The decision was important for Australia and the foreign exchange market. A higher interest rate often gives support to a country’s currency because it can make local assets more attractive to global investors. Yet the Australian dollar did not rise after the RBA decision.
Instead, AUD/USD fell below the important 0.7000 level. The pair moved to about $0.6980 after the decision, with the Australian dollar down about 0.51% at one point in the session. The fall shows that currency markets care not only about the rate decision but also about what a central bank may do next.
The RBA said inflation remains too high and that several risks have moved in the wrong direction. Higher global energy prices, pressure on domestic capacity and stronger price pressure from some firms have all added to concern about inflation.
Fourth rate hike of 2026
The September move was the RBA’s fourth rate hike of 2026. The cash rate has now risen by a full percentage point this year.
The rate stood at 3.60% at the end of 2025. The RBA raised it to 3.85% in February, then to 4.10% in March and 4.35% in May. After two meetings without a change, the central bank raised the rate again on September 29 to 4.60%. The new rate takes effect from September 30.
The size of the September move was 25 basis points. That is equal to 0.25 percentage points.
The RBA’s decision came after a period of concern about inflation. Core inflation stood at 3.6%, above the bank’s target range of 2% to 3%. The central bank said some of the upside risks it had warned about in August were now starting to appear.
The rate rise therefore had a clear purpose. The RBA wants to put more pressure on demand and help bring inflation back toward its target.
Why the RBA raised rates
The main reason was inflation.
The RBA said recent inflation results were stronger than it had expected at its previous meeting. It also said global energy prices had risen much more than its August forecast had assumed.
The wider conflict in the Middle East has pushed energy prices higher. This creates a problem for Australia because higher fuel and energy costs can affect transport, production and household expenses.
The RBA also pointed to pressure on domestic capacity. In simple terms, some parts of the Australian economy still face strong demand and limited supply. That can make it easier for businesses to raise prices.
The central bank said its contacts with firms showed cost pressure across the economy. Some firms have already raised their prices, while others are considering price increases. Short-term measures of inflation expectations also remain high.
These factors gave the RBA a reason to raise rates even though some parts of the economy have started to slow.
Inflation remains above the RBA target
Australia’s inflation rate remains a key concern for policymakers.
The RBA has a target range of 2% to 3%. Yet core inflation remains at 3.6%. That means price pressure is still above the level the central bank wants to see over time.
The bank has already raised rates four times in 2026. Each increase aims to make borrowing more expensive and reduce excess demand.
Higher rates can affect home loans, business loans and other forms of credit. When borrowing costs rise, households may have less money for spending. Companies may also delay some investment plans because loans cost more.
This process can help slow price growth. But it can also reduce economic growth and place more pressure on households.
That balance is now important for the RBA.
Growth has started to slow
The RBA did not say the Australian economy is weak across the board.
Its latest statement said output growth has slowed, although growth in the June quarter was a little stronger than the bank had expected. The bank also said consumer spending appears to be easing gradually.
At the same time, housing prices have fallen in most capital cities and new housing loans have declined noticeably.
These signs show that higher rates are already affecting parts of the economy.
The RBA therefore faces a difficult task. It wants to reduce inflation without causing an excessive slowdown in economic activity.
The latest rate hike suggests the bank sees inflation as the more urgent concern for now.
Why the Australian dollar fell
The Australian dollar’s fall after the rate hike may look unusual at first.
Normally, a higher interest rate can support a currency. But the market had already expected the RBA to raise rates by 25 basis points. That meant the decision itself was not a major surprise.
Currency traders often focus on the difference between what they expected and what actually happens.
In this case, the rate increase was already well known before the announcement. The bigger question was what Governor Michele Bullock and the RBA would say about the next step.
The market saw some uncertainty about future rate moves. That reduced the positive effect of the rate hike on the Australian dollar.
AUD/USD fell below 0.7000, a level that traders often watch closely. The pair reached about $0.69803 at one point, with a 0.51% fall reported during the session.
Michele Bullock’s message matters
RBA Governor Michele Bullock’s comments were an important part of the market reaction.
The RBA has made clear that another rate increase is possible if inflation remains too high. But the bank has not promised a set path for future policy.
That leaves the market focused on new economic data.
The RBA’s statement said future decisions will depend on the data and its assessment of the outlook and risks. The bank will pay close attention to global economic conditions, financial markets, domestic demand, inflation and the labour market.
This means the September rate hike does not automatically mean another increase will come at the next meeting.
For the Australian dollar, that distinction matters. If traders think the RBA may pause after the September move, the currency may receive less support from the higher rate.
Global energy prices create a new problem
Energy prices have become an important part of the Australian rate story.
The RBA said global energy prices are now much higher than it had assumed in its August forecasts. The broader Middle East conflict has added to this pressure.
Higher energy prices can raise inflation in several ways. Fuel costs can rise first. Then higher transport and production costs can affect the price of other goods and services.
This can make inflation harder to control.
For the RBA, the problem is that interest rates cannot directly lower the price of oil. A rate hike cannot produce more oil or solve a global supply problem.
What higher rates can do is reduce demand inside Australia. If domestic demand becomes weaker, firms may have less room to raise prices.
The RBA therefore has to judge how much of the inflation pressure comes from global factors and how much comes from domestic demand.
The Australian economy faces mixed signals
Australia’s economic picture is not simple.
On one side, inflation remains high and cost pressure is still strong. The labour market also remains important for the RBA’s policy view.
On the other side, growth has slowed. Consumer spending is easing, housing prices have fallen in most capital cities and new housing loans have declined.
These mixed signals make the next few months important.
If inflation remains high, the RBA may need to keep rates at a high level for longer. If price pressure starts to ease, the bank may have more room to stop further hikes.
That uncertainty can create more volatility for AUD/USD.
The US dollar adds more pressure
The Australian dollar also faces a strong US dollar.
On September 29, the US dollar was close to a two-month high. US Treasury yields rose sharply, with the two-year yield close to 5%.
The market also saw more than a 70% chance of a Federal Reserve rate hike at the end of October. A week earlier, that probability was about 57%.
This matters because the Australian dollar competes with the US dollar for global capital.
Even when the RBA raises rates, the Australian dollar can fall if US rate expectations rise faster or if the dollar gains broad support.
That was part of the reason AUD/USD struggled after the RBA decision.
The US dollar also received support from higher oil prices and strong US economic data. These factors have made the global currency market less friendly for the Australian dollar.
0.7000 becomes a key level
The fall below 0.7000 gives the AUD/USD pair an important technical point to watch.
The 0.7000 level is a round number and a widely watched area in the currency market. A move below it can change short-term market sentiment.
AUD/USD traded near $0.69803 after the RBA decision. The pair had earlier moved as high as $0.7029 before the rate decision, according to Reuters.
The next direction will depend on both Australian and US data.
If Australian inflation remains high and the RBA signals more rate hikes, the Australian dollar could receive support.
If US inflation remains strong and the Federal Reserve moves toward another rate increase, the US dollar could keep pressure on AUD/USD.
What comes next for the RBA
The RBA will now wait for more economic data before its next policy decision.
The bank has made clear that it will assess inflation, demand, the labour market and global financial conditions.
The latest decision also shows that the RBA remains prepared to act when inflation risks rise.
However, the central bank has to consider the effect of higher rates on households and businesses. More rate hikes can put greater pressure on borrowers and housing demand.
The RBA must therefore find a balance between price stability and economic activity.
Its next decisions will depend on how the data changes after the September rate hike.
What the rate hike means for forex
The RBA decision shows why a rate hike does not always lead to a stronger currency.
The Australian cash rate is now 4.60%, a 15-year high. The RBA has raised rates by a full percentage point during 2026. Yet AUD/USD fell below 0.7000.
The reason is that forex markets look ahead.
Traders had already expected the 25-basis-point move. The focus then shifted to the outlook for future policy. At the same time, the US dollar had strong support from high Treasury yields and higher expectations for another Federal Reserve rate hike.
This created a situation where Australia had a higher rate but the Australian dollar still lost ground.
Outlook for the Australian dollar
The Australian dollar now faces several major forces.
The RBA has shown that it is prepared to raise rates when inflation stays high. Core inflation at 3.6% remains above the 2% to 3% target range.
But growth has slowed, consumer spending is easing, and housing conditions have weakened. These factors may limit how far the RBA can raise rates.
Global energy prices add another layer of uncertainty. If oil and energy costs stay high, inflation may remain above target for longer. If those prices fall, some pressure on Australian inflation could ease.
The US dollar is another major factor. Higher US Treasury yields and strong Federal Reserve rate expectations can continue to affect AUD/USD.
A major rate decision with a mixed market reaction
The RBA’s September 29 decision was a major event for the Australian dollar.
The central bank raised the cash rate by 25 basis points to 4.60%, the highest level in 15 years. It was the fourth RBA rate hike of 2026 and took the total increase for the year to one full percentage point.
The move came because inflation remains above target, global energy prices have risen sharply and domestic cost pressure remains firm.
Yet AUD/USD fell below 0.7000 after the decision. The move shows that the market was more focused on the future path of RBA policy and the strength of the US dollar than on the rate hike itself.
For now, the Australian dollar remains caught between high local rates and strong global dollar pressure. The next major moves will depend on inflation, energy prices, Australian economic data and the future policy path of both the RBA and the Federal Reserve.
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