The Reserve Bank of Australia kept its cash rate unchanged at 4.1% at its February 2026 meeting, disappointing market participants who had expected the beginning of an easing cycle. The Australian dollar fell to US$0.61, its lowest level since early 2022, weighed down by the interest rate differential with the US and weakening commodity demand from China.
Housing Market Stress
Australian mortgage holders continue to feel the strain of 13 rate increases between May 2022 and November 2023. Monthly repayments on a typical A$600,000 mortgage at a variable rate of 6.4% have increased by approximately A$1,400 compared to 2022 levels. Despite this, the RBA has been reluctant to cut rates, citing inflation that remains above target at 3.4%.
Home prices in Sydney and Melbourne have softened, with median prices falling 3-5% from mid-2024 peaks in some suburbs. However, rental vacancy rates remain below 1% in major cities, keeping rent inflation elevated at 7.8% year-on-year. The housing shortage is estimated at approximately 200,000 dwellings, with new construction lagging population growth driven by record immigration.
Mining Sector and China Dependency
Iron ore prices fell to approximately $90 per tonne, down from $140 in early 2024, reflecting weaker Chinese steel demand as the property sector contracted. Iron ore remains Australia's largest export, worth approximately A$130 billion annually. Lithium prices have also declined sharply, affecting Western Australian miners such as Pilbara Minerals and Mineral Resources.
The transition toward critical minerals for the green energy transition offers some diversification. Australia holds the world's largest lithium reserves and significant deposits of cobalt, nickel, and rare earths. Government investment in processing facilities aims to capture more value from the supply chain rather than exporting raw materials.
For RBA decisions, visit the Reserve Bank of Australia. For AUD exchange rates, see Trading Economics.