AUD/NZD Surges to 1.0860 After RBA Holds Rates Steady at 3.85%

The AUD/NZD pair rallied to near 1.0860 during Tuesday’s Asian session following a surprise move by the Reserve Bank of Australia (RBA) to maintain its Official Cash Rate (OCR) at 3.85%. The decision defied market expectations, which were largely tilted toward a 25 basis point rate cut.

According to a Reuters poll conducted between June 30 and July 3, 84% of economists anticipated a rate reduction to 3.60%, citing subdued economic growth and easing inflation pressures. The RBA’s decision to hold suggests a more cautious stance as policymakers seek further confirmation that inflation is on a sustainable path back to the 2.5% target.

The RBA statement noted that “current conditions provide scope to wait for additional data to ensure inflation continues trending towards target.” This pause reinforces the central bank’s data-dependent approach.

From a theoretical standpoint, maintaining higher interest rates supports the Australian Dollar (AUD), as it helps preserve yield attractiveness compared to lower-yielding peers.

Looking ahead, attention shifts to the Reserve Bank of New Zealand (RBNZ), which is set to deliver its policy decision on Wednesday. Markets broadly expect the RBNZ to keep its OCR unchanged at 3.25%, marking its first pause since August 2024. Since then, the central bank has lowered rates by a cumulative 225 basis points across six cuts.

However, amid rising global uncertainty and U.S.-driven trade tensions, the RBNZ is likely to retain a dovish tone and leave the door open for further easing if downside risks persist.

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