Textbooks say a central bank raising interest rates should lift its currency. The Australian dollar did not get the memo. On Tuesday the Reserve Bank of Australia raised the cash rate to 4.60%, its highest in 15 years and the fourth hike of the year, after inflation jumped back to 4.0%. And yet the Aussie dollar fell, sliding below 0.70 to a nine-week low. For forex traders, that gap between what "should" happen and what did is the whole lesson.
Why inflation forced the RBA's hand
| Indicator / market | Reading | Detail |
|---|---|---|
| The RBA decision (Tue Sep 29) | ||
| Cash rate | 4.60% | +25bp · 15-year high · 9-0 vote |
| Hikes in 2026 | 4 | from 4.35% to 4.60% on the day |
| Guidance | more possible | Gov. Bullock: will hike again if needed |
| The trigger: inflation (August) | ||
| Headline CPI | 4.0% YoY | up from 3.5% in July · above 2-3% target |
| Trimmed mean (core) | 3.6% YoY | unchanged · still above target |
| The market reaction | ||
| AUD/USD | < 0.70 | nine-week low · about -0.5% on the day |
| US 10-Year yield | ≈ 5.1% | near highest since 2007 · keeps USD bid |
CPI figures are the ABS monthly indicator for August 2026; the next release (September) is due 28 October. The AUD/USD close level was reported as "below 0.70"; figures are approximate and from live pages. Always check live prices with your broker.
The RBA pulls the trigger again
This was the RBA's fourth rate rise of 2026, and it takes the cash rate to a level Australians have not seen in 15 years. The vote was unanimous, all nine board members in favour, and the reasoning was blunt: inflation has come in stronger than the bank expected, helped along by higher global energy prices and domestic capacity pressures. Governor Michele Bullock made clear the job is not finished, saying the bank will raise rates again if that is what it takes to drag inflation back down, and noting that inflation hurts everyone, especially those who can least afford it. With the cash rate now at 4.60% and still-sticky prices, the RBA has planted itself firmly in tightening mode.
Inflation back above target
The number behind the decision is simple. Australian consumer prices rose 4.0% in the year to August, up from 3.5% in July, which had been the low point for the year. The trimmed mean, the RBA's preferred core measure that strips out the most volatile items, held at 3.6%. Both sit well above the bank's 2 to 3% target band, and the fact that headline inflation is heading in the wrong direction again is exactly what tipped the balance toward another hike. The next inflation print, due on 28 October, is now the single most important date on the Australian calendar.
Live AUD/USD chart (last three months). Prices shown are current, not a fixed snapshot.
So why did the Aussie dollar fall?
Here is the part that trips up newer traders. A rate hike makes a currency more attractive to hold, all else equal, so the Aussie "should" have risen. It did, for a moment, before reversing hard. Two things explain it. First, the hike was fully expected, so it was already in the price, a classic "buy the rumour, sell the fact", and Bullock's tone, while hawkish, did not convince the market another hike was imminent. Second, and more powerful, is what is happening offshore: as we covered in this week's bond rout, US Treasury yields have surged to their highest since 2007, which keeps the US dollar firmly in control of every major pair. When the US dollar is this strong, even a hiking RBA struggles to lift the Aussie. It is the same force we explain in how rates, inflation and the dollar move markets: relative strength is what matters, and right now the dollar is winning.
What it means for traders
The takeaway for anyone trading AUD/USD or the crosses is that the interest rate is only half the story. A central bank can hike and still watch its currency fall if the move is expected and the US dollar is stronger. For now, the path of least resistance for the Aussie is lower while US yields stay elevated, and the next real test is the 28 October inflation report and the Fed's next move. Into a two-sided, headline-driven market, the discipline matters more than the forecast: keep risk small per trade, size every position deliberately, and if you trade the Aussie, watch the US dollar as closely as you watch the RBA. You can follow the next moves in our daily market wraps.
This article is for information and education only and is not financial advice, a forecast, or a recommendation to buy or sell any instrument. Rates, prices and percentage moves are approximate, sourced from public releases and price pages, and may be revised. Trading forex, CFDs and leveraged products carries a high level of risk and may not be suitable for all investors; you can lose more than your deposit. Always do your own research.