Australian dollar interest rate trends influence exchange rates: Market poised ahead of central bank decision

September 30th, the Reserve Bank of Australia (RBA) interest rate decision is about to be announced, and this policy statement will directly influence short-term fluctuations in the Australian dollar exchange rate. Additionally, the third-quarter CPI data to be released on October 29th is more likely to become a key factor in determining the RBA’s subsequent policy direction.

Current Situation of the Australian Dollar Interest Rate Trend: Three Factors Intertwined

The current Australian economic landscape presents a complex picture. GDP growth remains steady, and the unemployment rate stays low, which should support the Australian dollar. However, inflation shows signs of rising, and RBA Governor Lowe recently warned that if consumer spending continues to accelerate, further rate cuts may slow down.

The market generally expects the September decision to keep rates unchanged at 3.6%. According to the median forecast, the RBA is expected to make the next rate cut in November, after which rates will remain stable until Q3 2026. Notably, this forecast has significantly narrowed compared to earlier projections at the beginning of the year, which anticipated two rate cuts before early 2026; now, that expectation has been pushed back.

Different institutions have varying views on the Australian dollar interest rate outlook. Westpac takes the most dovish stance, predicting that the cash rate will fall below 3% next year; National Australia Bank (NAB) is the most cautious, believing that maintaining the current policy until May 2026 is a reasonable expectation. Standard Chartered Bank expects the RBA to cut by another 25 basis points in Q4, bringing the cash rate down to 3.35%, but also emphasizes that the unexpected rise in August CPI and ongoing economic recovery increase the risk of pausing rate cuts.

Australian Dollar Outlook: Hawkish and Dovish Battles Determine Short-term Direction

The tone of the rate decision will directly influence the short-term performance of AUD/USD. If the RBA signals a hawkish stance, the Australian dollar will be supported and rebound; otherwise, it will face short-term pressure.

In the medium term, Australia’s economic fundamentals remain solid, with no significant tariff shocks, and commodities like copper and gold remain bullish. These factors will provide underlying support for the Australian dollar.

The long-term outlook is more optimistic. Against the backdrop of the Federal Reserve’s large rate-cutting cycle, the Australian dollar interest rate trend is relatively stable, and AUD/USD still has room to rise. Westpac forecasts that by the end of 2025, AUD/USD will rise to 0.67, and by June 2026, it will climb to 0.69.

The upcoming trading focus will be on Governor Lowe’s forward-looking guidance during the press conference after the decision. Market participants will closely watch for any signs of change in his policy stance.