We're just days away from the handing down of the federal budget — and what a week it's been.
The Reserve Bank of Australia (RBA) piled more pressure onto household budgets by hiking interest rates for a third time this year, while market volatility continued as investors received mixed messaging surrounding the war in the Middle East.
Three in a row — and more to come?
The RBA this week decided to once again increase cash rate by 0.25 percentage points to 4.35 per cent, reversing the three interest rate cuts delivered last year.
All four of the big banks were quick to advise customers they would be passing on the rate hike in full from 15 May.
It means monthly repayments on an average home loan of $600,000 will increase by $91, or $152 for a $1 million loan. That translates to an accumulative increase of $272 and $453, respectively, per month since February.
RBA's inflation headache
The central bank also updated its inflation forecast — and it expects the situation to get worse before it gets better.
Previously, the central bank had forecast in May 2025 that trimmed mean inflation — it's preferred measure that strips out volatile items — would stay within its target band at 2.6 per cent through to 2027.
But what actually happened was underlying inflation rose to 3.3 per cent as the war in the Middle East erupted in late February.
Now, the RBA expects trimmed mean inflation to peak at 3.8 per cent in June and stay above 3 per cent until coming within its 2-3 per cent target by the end of next year.
That's seen some economists shift their forecasts: NAB expects another rate rise in June, while Westpac has adjusted its forecast from two more hikes in June and August, to August and September.
Australian dollar's strength
The Australian dollar hit a four-year high on Thursday, passing 72.47 US cents — which was last reached in April 2022.
This week's rate hike, and the prospect of more, consolidated the local currency’s performance. Hopes of a peace deal between the United States and Iran also helped push the Australian dollar higher.
Angus Geddes, chief investment officer at Fat Prophets, told SBS On The Money that those hopes have pushed up commodity prices, like iron ore, further supporting the Australian dollar.
However, that was short-lived as tensions renewed on Friday, and the dollar retreated from those highs, though it remains above 72 US cents.
Fuel prices continue to fall — for now
Petrol prices continued to fall last week, according to the Australian Institute of Petroleum.
It found national average price for unleaded dropped 8.9 cents a litre to 183.4 cents. That's almost below where prices were before the war started.
Meanwhile, the national average retail price for diesel fell to 254.3 cents per litre — a sharp drop of 20.7 cents.
Those price falls include the fuel excise cut, scheduled to end on 30 June. It is unclear whether it will be extended.
That's this week's On the Money wrap. Prefer to listen? The On the Money podcast breaks down the latest every weekday. You can tune in here or wherever you get your podcasts.
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