The Reserve Bank of Australia increased the interest rate by 25 basis points to 4.1%, implementing the baseline scenario already priced in by the market. As a result, the AUD/USD pair reacted weakly to this event. The Australian dollar failed to break above the 0.7100 resistance level (the upper boundary of the Kumo cloud on the daily timeframe) and then retreated to previous levels. This muted reaction is explained not only by the fact that the hawkish decision had already been priced in. Contrary to the expectations of many analysts, the central bank did not explicitly signal further tightening steps, expressing concern about stagflation risks.
Nevertheless, despite the mixed outcome of the March meeting, the Australian dollar continues to trade within the 0.70 level, showing notable resilience. Looking at the weekly AUD/USD chart, the pair reached a four-year high of 0.7190 last week, already during the escalation of the Middle East conflict. This was followed by a pullback amid a rise in risk-off sentiment, yet even with the overall strengthening of the US dollar, the pair held above the 0.7000 level.
Today's AUD/USD dynamics are also indicative, especially against the backdrop of the disappointing results of the March meeting, which can be described as a "dovish rate hike."
Market participants began preparing for an additional rate increase back in January, when data on Australia's inflation growth for the fourth quarter of 2025 was released. It became clear that the consumer price index had stabilized above 3%, exceeding the RBA's target range. February data on January CPI growth further reinforced this trend, showing accelerating inflation in 2026, with all report components in positive territory. Given that January data is an important component for first-quarter figures, the RBA drew the necessary conclusions—its members noticeably tightened their rhetoric and effectively began preparing the ground for a March rate hike. Additional fundamental factors also supported tightening, including continued labor market tightness and solid GDP growth in Australia in Q4.
In other words, the hawkish outcome of the March meeting had been largely predetermined by late February, with the market almost fully pricing in a 25-basis-point hike.
The Middle East conflict, which began two weeks before the meeting, also reinforced hawkish expectations. While earlier discussions focused on domestic factors such as inflation and the labor market, attention shifted toward external shocks, including the risk of unanchored inflation expectations, rising fuel costs, and potential secondary effects.
It is important to note that geopolitics was not the primary driver but rather an amplifying factor of existing risks. Therefore, the market reasonably concluded that the March rate hike would not be the last this year. Ahead of the meeting, this view was shared by Australia's "big four" banks: Westpac, NAB, CBA, and ANZ.
However, contrary to most analysts' expectations, the RBA delivered what can be described as a "dovish hike."
The rate increase decision was not unanimous and was narrowly passed: five out of nine board members voted for tightening, while four supported maintaining the status quo.
This suggests that a further rate hike in May is uncertain. Although Michele Bullock indicated during the press conference that inflation risks currently outweigh risks of slowing growth, the future path of rates will depend on incoming data.
Notably, the four board members who favored holding rates signaled that they are not opposed to hikes in principle but prefer to wait for first-quarter CPI data, which will be released in April. In effect, they advocated postponing the next hike until May, when a broader macroeconomic picture will be available. If headline inflation rises in Q1 due to higher oil prices but core inflation remains stable, the RBA may pause until June, when Q1 GDP data is released. However, if core inflation indicators also show upward momentum, the regulator will likely proceed with another rate hike as early as May, even at the expense of economic growth.
Thus, the results of the March meeting cannot be described as purely dovish, but neither are they unequivocally hawkish. The RBA has expressed some doubt about a May hike, yet its overall stance remains relatively tight. The divergence in monetary policy between the RBA and the Federal Reserve continues to support the Australian dollar. Therefore, downward price movements in the AUD/USD pair can be used to open long positions, with the initial (and for now main) target at 0.7100—the upper boundary of the Kumo cloud on the H4 timeframe.
