The market is confident that the Reserve Bank of Australia (RBA) will keep all monetary policy settings unchanged at its September meeting. This is the most widely expected scenario, and its outcome has already been factored into the price. The intrigue lies in the RBA's future actions, given the mixed fundamental backdrop ahead of the September decision.

Last week's data showed that monthly inflation in Australia accelerated to 3.0% — the fastest pace since July 2024. However, the rise in CPI in August was driven mainly by temporary factors, particularly the expiration of "energy" subsidies in three states.

The labor market delivered weak results: total employment in August fell by 5,000 against forecasts for a 20,000 increase. Full-time jobs declined by 40,000, while part-time employment grew by 35,000. The participation rate unexpectedly dropped to 66.8% (vs. a 67.0% forecast), while the unemployment rate rose to 4.2%.

Meanwhile, Australia's Q2 GDP growth exceeded expectations: the economy expanded by 1.8% y/y, compared to a 1.6% forecast (after 1.4% in Q1). On a quarterly basis, GDP grew 0.6% versus 0.5% expected (and 0.3% in Q1). This marked the third consecutive quarter of accelerating growth.

In other words, the picture shows a spike in monthly inflation (driven mainly by temporary factors), a decline in August employment, and stronger GDP growth in the second quarter.

Such results justify a wait-and-see approach at the September meeting. Future policy decisions will hinge on the dynamics of key macro indicators, especially labor market and inflation data. For instance, Q3 CPI figures (the RBA's primary focus) will be published in October. As for labor conditions, it is worth noting that July's "Australian Nonfarm Payrolls" report was strong, so the RBA is unlikely to draw far-reaching conclusions from just one weak August print.

In her recent remarks, RBA Governor Michele Bullock gave an optimistic assessment of the national economy, including labor market conditions. According to her, the central bank is close to meeting its main targets on inflation and employment: inflation is moving toward the target range, while the labor market is "around full employment." Although she acknowledged that labor conditions have "slightly weakened" and unemployment has "ticked higher," she made it clear that the Bank will hold policy steady at the upcoming meeting. Looking ahead, however, the outlook remains open. Bullock emphasized that future moves will depend on incoming data.

Most analysts (Westpac, ANZ, Commonwealth Bank) expect the RBA to keep the status quo in September but to cut rates at the following (November) meeting. From the "Big Four" banks, only National Australia Bank doubts a November cut, arguing instead that additional easing is more likely in spring 2026.

A Reuters poll found that 32 out of 39 economists believe the RBA will cut rates by 25 basis points before the end of the year — but not in September, instead at one of the two remaining meetings (November or December).

In other words, the market is convinced that the RBA will hold rates steady in September but move toward easing later this year. Given this dovish bias, any hesitation or pushback against rate cuts would likely be interpreted as a favorable sign for the Australian dollar. Judging by Bullock's earlier statements, the central bank is likely to adopt a cautious tone, highlighting the risk of accelerating inflation. After all, despite the "one-off factors" in the August CPI report, monthly inflation has accelerated for two consecutive months, which does not strengthen the case for dovish rhetoric.

Thus, the outcome of the September RBA meeting may support the Aussie, unless the Bank explicitly signals another rate cut in November or December, which seems unlikely, given that Q3 CPI data will only be released next month. The nearest upside target for AUD/USD is 0.6600, corresponding to the middle line of the Bollinger Bands on the D1 timeframe.