RBA set to lift interest rates again, forced by high inflation and recent Oil shock

The Reserve Bank of Australia (RBA) is set to deliver another 25 basis points (bps) interest rate hike following its March monetary policy meeting on Tuesday, lifting the Official Cash Rate (OCR) to 4.10% from 3.85%.

The decision will be announced on Tuesday at 03:30 GMT, accompanied by the Monetary Policy Statement (MPS). RBA Governor Michele Bullock’s press conference will follow at 04:30 GMT.

The Australian Dollar (AUD) is primed for intense volatility in reaction to the RBA policy announcement and Bullock’s presser.

RBA rate hike is a done deal amid energy-driven inflation risks

As the war in the Middle East continues, central banks globally face a tough call over whether to look through the energy-driven inflation shock or push back against it and risk derailing the economic recovery.

However, the RBA seems well-positioned to counter looming inflation risks by raising the OCR as the economy remains on a solid footing.

Data from the Australian Bureau ​of Statistics (ABS) showed the Gross Domestic Product (GDP) rose 0.8% in the fourth quarter of 2025, above an upwardly revised 0.5% in the previous ⁠quarter and the market consensus of 0.6%. Annual ​growth accelerated to 2.6%, the fastest pace since early 2023.

Meanwhile, the monthly Consumer Price Index (CPI) rose 0.4% in January, beating estimates of a 0.3% increase. Moreover, the annual inflation reading held at a firm 3.8%, above forecasts for a deceleration to 3.7%.

During a speech at the AFR Business Summit in Sydney on March 2, Governor Michele Bullock said that the Board was uncertain if financial conditions were sufficiently restrictive to return inflation to the midpoint of the target in a reasonable timeframe, highlighting that developments in the Middle East serve as a reminder of persistent geopolitical uncertainty, and warning that a prolonged shock could add to inflation pressures 

Last week, RBA Deputy Governor Andrew Hauser warned that Oil price shocks pose upside risks to inflation amid uncertainty tied to the Iran conflict.

“Volatility in Oil prices and tensions in the Middle East pose a genuine challenge for us [the central bank].” However, “The Australian economy in many ways is in good shape,” he said.

Against this backdrop, ANZ, Westpac, Deutsche, Citi and the National Australia Bank (NAB) revised their call, projecting a rate hike this week.

How will the Reserve Bank of Australia’s decision impact AUD/USD?

The AUD is finding its feet against the US Dollar (USD) as it braces for the RBA showdown.

AUD/USD could stage a solid recovery if the RBA’s MPS and Governor Bullock’s words suggest that rate hikes are here to stay.

On the other hand, the Aussie pair could continue to face bearish pressure if Bullock warrants caution on future rate hikes and delivers a wait-and-see guidance.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.

“The major has slipped under the 21-day Simple Moving Average (SMA) near 0.7070, signaling a loss of short-term upside momentum. The 14-day Relative Strength Index (RSI) has retreated toward the mid-40s, indicating fading bullish pressure and reinforcing the corrective tone after the pair failed to sustain gains above 0.7100.”

“Immediate resistance emerges at the 21-day SMA around 0.7070, followed by the 0.7120 area, which limited the pair in February, acting as the next barrier, and 0.7150 capping the topside beyond there. On the downside, initial support is at 0.6980, which supported the sharp decline on Friday, guarding a deeper pullback toward 0.6960, where the 50-day SMA currently rises. A break below that zone would expose the 100-day SMA around 0.6770,” Dhwani adds.