Aussie Builds Momentum Ahead of RBA Rate Decision. Forecast as of 04.05.2026

Author: Dmitri Demidenko - Reviewed by: Jana Kane

The Reserve Bank of Australia intends to raise its key interest rate for the third consecutive time. However, the AUD/USD pair's trajectory will depend on its rhetoric. Will the cycle of monetary tightening continue, or should we expect a pause? Let's analyze the situation and develop a trading plan.

The article covers the following subjects:

- Major Takeaways
- Weekly Fundamental Forecast for Australian Dollar
- Weekly AUDUSD Trading Plan

Major Takeaways
- The Reserve Bank is set to increase the cash rate.
- Australian inflation is slowing down.
- A correction in the S&P 500 will weigh on the aussie.
- Short positions on the AUD/USD pair can be considered with the target of 0.715.

Weekly Fundamental Forecast for Australian Dollar
Buy the rumor, sell the news. The Reserve Bank's third consecutive rate hike at its May 5 meeting — from 4.1% to 4.35% — is most likely already priced into AUD/USD quotes. Expectations of continued monetary tightening have become one of the main drivers behind the Australian dollar's strong performance, ranking second only to the Norwegian krone among G10 currencies. However, nothing lasts forever. Concerns about a pause in the tightening cycle could lead to profit-taking and a pullback.

Central Banks' Interest Rates

Source: Bloomberg.

The Reserve Bank of Australia's stance on inflation will be key in shaping the Aussie's trajectory against the US dollar. In March, consumer prices rose by 4.1%, while trimmed-mean CPI increased by 3.5%. Both readings came in below forecasts, as did quarterly inflation. However, they remain above the upper bound of the 2–3% target range, giving both doves and hawks within the central bank grounds to support their positions.

The pro–rate hike camp argues that the conflict in the Middle East could further fuel inflationary pressures that were already building, even without geopolitical factors. In contrast, their opponents contend that slowing economic growth and weak domestic demand will weigh on consumer prices.

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Publication date:

04 May 2026 - 11:01 (GMT)

RBA's Inflation Forecasts

Following the inflation data, the futures market reduced the probability of a cash rate hike in May from 85% to 75%. The derivatives market still expects the monetary tightening cycle to continue in September and has lowered the likelihood of a rate hike in December.

If the RBA maintains its commitment to fighting inflation at all costs, AUD/USD quotes will have room to rise. Bank of America projects a rally in the pair's quotes to 0.74 by the end of 2026. On the contrary, Bank Santander believes the aussie looks too expensive. The Bloomberg consensus forecast suggests the currency will end the year at 0.71.

The Reserve Bank's decision to take a wait-and-see approach could trigger profit-taking on long positions and a pullback in the AUD/USD pair. The regulator needs time to assess the impact of the two previous rounds of monetary tightening. At the same time, any hints of a pause in the monetary tightening cycle will deal a blow to the aussie.

Pressure on the Australian dollar could come from a correction in the S&P 500 index. Goldman Sachs warns that the stock market needs to release some steam after a prolonged rally to record highs. Hedge funds and investment advisors are curbing their purchases of securities, which, against the backdrop of excessive bullish positioning, is a worrying sign for the broad stock index and risk appetite.

Weekly AUDUSD Trading Plan
If the RBA softens its hawkish rhetoric, this will trigger short-term sell-off in the AUD/USD pair, pushing it down toward 0.715 and below. However, if the central bank maintains its stance on combating inflation at all costs, a pullback in the pair will present a buying opportunity.

This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.