RBA Sees Inflation Cooling a Bit Faster, But Risks Remain Skewed to Upside

RBA Trims Inflation Path, Yet Cautions on Upside Risks in New Projections

The Reserve Bank of Australia (RBA) has revised its inflation outlook slightly lower, anticipating a marginally faster cooling of price pressures than previously expected. However, the central bank was quick to emphasize that the risks to this forecast remain skewed to the upside, suggesting that further policy tightening is not off the table.

In its latest quarterly Statement on Monetary Policy, the RBA trimmed its near-term inflation forecasts, a move that aligns with recent softer-than-expected domestic data. Yet the bank underscored that underlying inflation remains sticky, driven by services costs and a tight labor market, which could keep price pressures elevated for longer.

This nuanced stance keeps the RBA in a patient, data-dependent mode, with the cash rate likely to stay at its current restrictive level until there is clearer evidence that inflation is sustainably returning to the 2–3% target band.

What’s Driving the RBA’s Slightly Softer Inflation View?

Cooler Global Commodities and Softening Domestic Demand

A key factor behind the marginal downgrade is the recent decline in global commodity prices, particularly energy and food, which has eased imported inflation pressures. Domestically, consumer spending has shown signs of softening under the weight of high interest rates, helping to moderate demand-driven price increases.

These forces have led the RBA to shave a few tenths off its inflation projections for the coming quarters, offering some relief to households and businesses grappling with the cost-of-living crunch.

Persistent Services Inflation and a Resilient Labor Market

Offsetting these disinflationary tailwinds, the RBA flagged that services inflation remains stubbornly high, fueled by robust wage growth and elevated rents. The labor market, while cooling, is still tight by historical standards, with the unemployment rate hovering near multi-decade lows.

This resilience in the jobs market gives the RBA little comfort that price pressures will fade quickly, keeping the upside risks to inflation firmly in play. The bank reiterated that it will not hesitate to raise rates again if the data warrant, even as markets lean toward a prolonged pause.

Key Levels and Data to Watch for AUD and Rate Expectations

For traders, the RBA’s updated forecasts reinforce a period of relative stability for the Australian dollar, with the currency likely to trade in a range against its major peers until the next inflation or labor market release. The AUD/USD pair remains sensitive to shifts in rate differentials, so any surprise in Australian CPI or jobs data could trigger sharp moves.

Beyond domestic data, global factors—particularly the path of U.S. monetary policy and commodity prices—will be pivotal in shaping the RBA’s next move. Traders should keep an eye on the AUD/USD price and monitor key support and resistance levels, while also tracking the RSI and moving averages on daily charts for momentum clues.

How Traders Can Interpret the RBA’s Mixed Signals

The RBA’s slightly dovish tweak to forecasts, coupled with a hawkish risk warning, creates a complex backdrop for positioning. For those trading rate-sensitive assets, the key takeaway is that the RBA is in no rush to cut rates, but also unlikely to hike unless inflation surprises to the upside.

This environment favors a carry-trade strategy for the AUD, as yield differentials remain supportive, but caution is warranted given the asymmetric risks. A hotter-than-expected CPI print could trigger a hawkish repricing, while a weak jobs report might fuel speculation of earlier cuts.

For a deeper understanding of how central bank policy impacts your trading approach, consider exploring the VNIX classroom or take our trading style quiz to align your strategy with current market conditions. Engaging with the signal rooms can also provide real-time insights from experienced traders navigating RBA announcements.