RBA August Preview: Hold Likely, With Hike Risk Still Alive

The RBA is widely expected to hold rates steady at its 10–11 August meeting, but the real market debate has moved beyond the August decision. The key question now is whether the pause can last, or whether sticky inflation keeps another hike alive before year-end.

After holding the cash rate at 4.35% in June, the Board appears to have enough evidence to stay on the sidelines again in August. Inflation has eased from its recent peak, the labour market has softened slightly from a very tight starting point, and earlier rate hikes are still working their way through the economy.

A mixed inflation picture

The latest inflation data gives the RBA headline relief, but not underlying comfort. Annual CPI slowed to 3.8% in June from 4.0% in May, while trimmed mean inflation stayed at 3.6%, still above the RBA’s 2–3% target band. That makes the direction of travel encouraging, but the destination still uncomfortable.

The labour market supports a patient RBA

The labour market also supports a more patient stance. The unemployment rate held at 4.4% in June, while employment rose strongly by 76,300 and participation lifted to 67.0%. This points to a labour market that is cooling from an overheated starting point, while still showing enough resilience to keep inflation risks on the table. It gives the RBA room to pause, while leaving the door open to further tightening if needed.

RBA’s latest message

Governor Michele Bullock’s 28 July speech reinforced that message. The global environment has become more shock-prone, the outlook remains uncertain, and the RBA’s objectives have not changed. She also noted that the full effects of earlier rate increases will take time to materialise, while underlying inflation is still expected to be lifted by the pass-through from higher fuel costs.

This is why August looks more like a tactical hold than a policy turning point.

The RBA’s May forecasts also keep the higher-for-longer argument alive. Its cash rate assumption rises to 4.7% by the end of 2026 and stays around that level through 2028. More importantly, the detailed forecast table still has CPI inflation at 4.0% and trimmed mean inflation at 3.5% by the end of 2026, both above the RBA’s target band. With unemployment expected to edge up only gradually, the message is clear: the RBA’s inflation fight is not finished, and 4.35% is not yet a convincing peak.

The key line from Bullock’s speech is that “some further easing in the growth of demand is likely to be required” to bring inflation back sustainably to target. The question for August is whether the tightening already delivered earlier this year is enough to do that work.

What futures markets are pricing

Futures pricing tells the same story: August may be a hold, but the cycle is not fully settled. The latest cash-rate forecast path still rises from 4.35% toward the 4.5–4.6% area by late 2026 and early 2027. That suggests markets are pricing a pause now, while still leaving room for another hike later this year.

What to watch at the August meeting

The statement language will matter far more than the rate decision itself:

• Dovish Signal: If the RBA puts more weight on softer headline inflation, weaker housing momentum, and a gradually easing labour market, markets may extend expectations for a longer pause.
• Hawkish Signal: If the Board keeps emphasising sticky underlying inflation, cost pass-through, and capacity pressures, the risk of another hike later this year remains live.

For AUD/USD, a straightforward hold with softer forecasts may keep the Aussie under pressure. Conversely, a hold that preserves the tightening bias could help the currency defend the critical US70 cent support area.

Summary

The August meeting may confirm a pause, but it is unlikely to confirm a peak. Until underlying inflation falls more convincingly, the RBA has room to wait — but little room to sound finished.

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