Key Moments
- AUD/USD trades near 0.7160 and extends losses for a second day, even though the RBA lifted its Official Cash Rate to 4.35%.
- The RBA flagged a material rise in inflation for H2 2025. It linked this to capacity constraints, higher fuel and commodity prices, and the Middle East conflict.
- Meanwhile, the US Dollar gains on safe-haven demand. This follows Iran’s attacks on the UAE and rising Treasury yields, as markets expect further Fed tightening.
RBA Delivers Expected 25 bps Hike
AUD/USD stays under pressure near 0.7160 during Asian trading on Tuesday. The Australian Dollar shows a muted reaction to the Reserve Bank of Australia’s latest decision.
The RBA raised the Official Cash Rate by 25 basis points to 4.35%, up from 4.10%, at its May meeting. The move matched market expectations. However, the vote was not fully aligned. Eight members backed the hike, while one member preferred to hold rates at 4.10%.
RBA Flags Rising Inflation Pressures
In its Monetary Policy Statement, the RBA said inflation rose sharply in H2 2025. It pointed to several drivers. These include capacity constraints, higher fuel and commodity prices, and the Middle East conflict.
In addition, firms continue to pass higher costs to consumers through price increases. As a result, short-term inflation expectations have also moved higher.
AUD Pressured as Geopolitical Tensions Boost the Dollar
The Australian Dollar weakens against the US Dollar as risk sentiment deteriorates. At the same time, investors move into the Greenback for safety.
Demand for USD rises after reports of Iranian attacks on the United Arab Emirates. According to CNBC, the UAE faced drone and missile strikes. Meanwhile, the US said it destroyed Iranian boats in the Strait of Hormuz.
US President Donald Trump also warned that Iran would be “blown off the face of the earth” if it targets US ships protecting commercial vessels in the Hormuz Strait.
Fed Rate Expectations Support the Greenback
The US Dollar also strengthens on rising Treasury yields. In addition, markets expect the Federal Reserve may need to tighten further to control inflation.
Minneapolis Fed President Neel Kashkari said on Sunday that more rate hikes cannot be ruled out. He warned that inflation risks remain elevated, especially due to higher energy prices linked to the Iran conflict.
RBA Rate Decision – Latest Release Details
| Indicator | Details |
|---|---|
| Event | RBA Interest Rate Decision |
| Actual | 4.35% |
| Consensus | 4.35% |
| Previous | 4.1% |
| Last release | Tue May 05, 2026 04:30 |
| Frequency | Irregular |
| Source | Reserve Bank of Australia |
How the RBA Decision Typically Impacts AUD
The Reserve Bank of Australia sets its policy rate at eight scheduled meetings each year. A rate hike usually supports the Australian Dollar. It signals tighter monetary policy.
However, a pause or cut can weigh on AUD. This is especially true when paired with a dovish outlook for growth or inflation.
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