RBA Holds Rate at 3.85%, Defying Market Expectation

The Reserve Bank of Australia (RBA) kept its cash rate unchanged at 3.85% at its July 8 meeting, surprising markets that had largely priced in a 25bps cut. The decision stunned investors, with the central bank opting for a more cautious stance amid lingering uncertainty and rising global trade risks.

The board vote was reportedly split, with three of nine members supporting an immediate rate cut while six voted to hold steady—marking a rare display of internal division. However, Governor Michele Bullock emphasized that the decision was “more about timing than direction,” signaling that the board remains open to rate cuts—potentially as soon as the August meeting.

RBA: Patience, Data-Dependent, and Global Trade Risk

In its policy statement, the RBA acknowledged that inflation had moved closer to its 2–3% target band, but stressed that the improvement had only been evident for one quarter. Officials also cited rising external risks, including renewed U.S. tariff threats, as a reason to wait for clearer signals.

“Inflation has come down, but we need more data to confirm the trend is sustainable,” Bullock said, referring to the upcoming Q2 CPI release on July 30, which is expected to be a key trigger for any future policy shift.

“The RBA’s tone suggests this is a pause, not a pivot,” said Shawn Lee, Senior Market Analyst at Ultima Markets. “Markets should now turn their attention to the July CPI and how BRICS-U.S. trade tensions may affect risk sentiment.”

Markets are now widely expecting the RBA to cut rates in August, should inflation continue to trend lower. However, global volatility, especially related to U.S. fiscal moves and commodity prices, could complicate the policy path.

Market Impact: AUD Strengthens, Bond Yields Jump

The Australian dollar (AUD/USD) rose around 0.8% to approximately 0.6543 after the decision, while bond yields climbed. 3-year yields rose from 3.36% to 3.43%, and 10-year yields edged up from 4.23% to 4.27%.

AUDUSD, Day-Chart Analysis | Source: Ultima Market MT5

From a technical perspective, the narrowing uptrend in AUD/USD remains intact, with the pair trading above the 0.6500 psychological mark, suggesting that further upside is still possible.

However, traders should remain cautious of emerging global trade risks, as the Australian Dollar is a risk-sensitive currency. Any escalation in global tensions could lead to renewed downside pressure.

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