RBA rate hike sends Australian dollar soaring, ASX tumbling

Australia’s dollar immediately jumped and the sharemarket slid after the Reserve Bank moved on interest rates.

The RBA has lifted interest rates by 25 basis points following its first meeting of 2026.

The official cash rate is now 3.85 per cent.

Interest rates are now back where they were in July 2025.

In the moments immediately after the announcement, the Australian dollar jumped 0.77 per cent back above US 70 cents.

However, the sharemarket immediately slipped.

Prior to the announcement the ASX 200 was up 1.05 per cent and after the announcement it was up 0.76 per cent.

RBA governor Michele Bullock explained the higher exchange rate was helping to “buffer the economy”.

“It would help to lower import prices and that would maybe get passed through to the prices consumers are seeing,” she said at a press conference following the rates announcement.

“There is a sense that an appreciation in the exchange rate can also help to slow the economy a little bit.”

Ms Bullock cautioned the exchange rate needed to be more sustained and over a longer period to have a lasting impact.

There’s been a strong rally for the local currency, which last week hit a three-year high of just under US71c before retreating to US69.63c.

“The hike gave the Aussie a little boost,” IG market analyst Tony Sycamore said.

“I see the pullback in the Aussie dollar as a correction and I don’t think this is a reversal lower.”

He said a further rise in the Australian dollar would depend on commodity prices and the risk sentiment of investors moving forward.

The Australian dollar is considered a risk asset due to its correcting with global economic cycles and strong connection to commodity prices.

Wealth Within chief analyst Dale Gillham said Tuesday’s boost in the Australian dollar helped to reduce inflation, with the “sweet spot” for the currency being about US70c.

“When it’s around the mid-60 cents, Australia effectively imports inflation,” he said.

“Fuel, electronics, cars and everyday goods all get more expensive.

“Around 70 cents sits the balance point – strong enough to ease inflation but not so strong that it chokes off growth.”

Mr Gillham conceded a strong Australian dollar did not stop things getting worse.

“The dollar’s move is a signal, not a solution,” he said.

“It tells you inflation pressure is easing at the edges.

“It shows that global money is flowing back to Australia and suggests things are stabilising, even if they’re not comfortable yet.”