Fed Funds vs RBA Cash Rate
On April 29, 2026 the FOMC held the fed funds target at 3.50% to 3.75% for a third consecutive meeting on an 8-4 vote, the most dissents on a single decision since October 1992. Six weeks earlier, on March 18, 2026, the RBA hiked the cash rate target by 25 basis points to 4.10%, having already lifted from 3.60% to 3.85% in February.
Also known as: Federal Funds Rate (fed rate, interest rate) · Australia Cash Rate Target (RBA rate, Australia cash rate, Australia policy rate, Reserve Bank of Australia rate)
Why This Comparison Matters
On April 29, 2026 the FOMC held the fed funds target at 3.50% to 3.75% for a third consecutive meeting on an 8-4 vote, the most dissents on a single decision since October 1992. Six weeks earlier, on March 18, 2026, the RBA hiked the cash rate target by 25 basis points to 4.10%, having already lifted from 3.60% to 3.85% in February. The result is an Australian premium of roughly 35 to 60 basis points over US policy, a configuration that has not held since 2014. The Fed-RBA spread is the cleanest read on the divergence between a US central bank arguing about when to deliver one final cut and an RBA still chasing a 2025 inflation reacceleration, and it is the dominant driver of AUD/USD over multi-month windows.
What each policy rate is and how the spread is built
The Federal Funds Rate (FRED series FEDFUNDS) is the monthly average of the effective rate at which depository institutions trade federal funds with each other overnight, fixed within the FOMC target range that has stood at 3.50% to 3.75% since the December 2025 meeting. The RBA Cash Rate Target (RBA series FIRMMCRT, table F1.1) is the rate the Reserve Bank Board sets for unsecured overnight loans between banks in the cash market, the operational tool the RBA uses to deliver its 2% to 3% inflation target.
The two rates are decided on different calendars: the FOMC meets eight times a year, while the RBA Monetary Policy Board meets nine times a year, with the post-2024 reforms moving Australia from eleven meetings annually to nine plus quarterly Statement on Monetary Policy releases. The Fed-RBA spread is calculated as fed funds minus the cash rate target. As of April 30, 2026 the spread is between negative 35 basis points (fed funds at 3.75% minus cash rate at 4.10%) and negative 60 basis points (fed funds at 3.50% minus 4.10%), the deepest negative US-Australia gap since the 2010 to 2013 mining boom era.
The 2026 divergence: the US debating one cut, the RBA still hiking
The configuration in April 2026 is the cleanest divergence between the two central banks in more than a decade. The April 29 FOMC statement retained language pointing to a final cut later in 2026, but Governor Miran voted for an immediate 25 basis point reduction and three other voters dissented against the cut-bias language, producing the 8-4 split. The March 2026 SEP median has fed funds at 3.10% by year-end 2026, implying one to two cuts of 25 basis points.
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Frequently Asked Questions
Why is the RBA hiking while the Fed is debating cuts?+
Australian inflation reaccelerated in the second half of 2025 with trimmed-mean CPI hitting 3.4% in Q4 2025, well above the 2% to 3% RBA target band. The Australian labor market remains at full employment and the iron ore-driven mining capex cycle has resumed. US inflation has been more contained at Core CPI 2.6% in March 2026, allowing the Fed to debate cuts while the RBA tightens. The divergence reflects different inflation regimes, not a difference in central bank reaction functions.
What is the current Fed-RBA spread?+
Fed funds is held at 3.50% to 3.75%; the RBA cash rate target is 4.10% as of March 18, 2026. The spread is between negative 35 basis points (using fed funds upper bound) and negative 60 basis points (using fed funds lower bound), the most negative US-Australia gap since 2014.
How does the Fed-RBA spread drive AUD/USD?+
AUD/USD tracks the rate differential closely over multi-month windows through the carry-trade channel. Every 25 basis points of Fed-RBA compression has historically produced roughly 1.5% to 2% AUD/USD appreciation over the subsequent month. AUD/USD hit a four-year high of $0.7193 on April 27, 2026, up roughly 14% from the November 2024 low when the spread was at positive 110 basis points.
When did the spread last reach these levels?+
The current negative 35 to 60 basis points spread is the deepest US-Australia gap since 2014, when post-GFC US zero-rate policy met an Australian cash rate at 2.50%. The deepest extreme in modern history was July 2008, when the RBA peaked at 7.25% while the Fed had cut to 2.0%, producing a negative 525 basis points spread that ultimately drove AUD/USD to its all-time high of $1.1080.
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