The 101 explainer

Build a clear, foundational understanding before going anywhere near a setup.

What the cash rate is, in plain English

The cash rate is the interest rate that commercial banks charge each other for overnight, unsecured loans. The cash rate target is the level a central bank officially sets to steer that market.

In Australia, the RBA sets the cash rate target to manage inflation and employment. While the names vary, each acts as an anchor for the following equivalents:

• United States: Federal Funds Rate
• United Kingdom: Bank Rate
• Eurozone: Main Refinancing Rate
• New Zealand: Official Cash Rate

A simple way to think about it is as the wholesale price of money. When that wholesale price rises, the retail prices linked to it, such as mortgage rates, business loans, savings rates and bond yields, often move higher too. When it falls, borrowing costs across the economy tend to ease.

For traders, this is the macro anchor. It is not just a number on an economic calendar; it influences currencies, indices, commodities, and yield-sensitive stocks.

Source. Reserve Bank of Australia, US Federal Reserve, Bank of England, European Central Bank, Bank of Japan and Reserve Bank of New Zealand official statements, figures as at May 2026. Educational illustration.

Why the cash rate matters more than new traders expect

Central bank decisions are among the most closely watched market events on the calendar. They influence currency valuations through yield differentials, equity index pricing through valuation models, commodity prices through the strength of the US dollar, bond yields, rate-sensitive stocks, and the cost of holding leveraged positions overnight.

For CFD traders, this matters for two reasons.

First, leverage can magnify both gains and losses around volatile events. That makes preparation and risk controls especially important.

Second, the swap or holding cost on a CFD position is linked to the underlying cash rate. When rates change, the cost of carrying a position overnight may also change. A pair like AUD/JPY can behave differently when the yield gap is wide compared with when it is narrow.

New traders often underestimate the speed of repricing. A central bank can change its tone in a single sentence. Markets do not wait for the next quarterly review.

The key terms to know

You do not need to memorise every term in this list. These are the ones that come up most often around cash rate decisions.

Source. GO Markets illustrative calculation. Actual swap or rollover charges depend on the rate differential between both currencies in the pair, broker markup and triple-swap rules over weekends. Educational illustration only.

Source. Stylised illustration based on typical post-decision price behaviour observed in publicly reported FX data. Educational purposes only. Past performance is not an indication of future performance.

Source. Stylised illustration based on typical sector behaviour during tightening cycles. Outcomes vary by cycle. Educational purposes only.

The chart is only one part of the story. The setup may look simple. The risk rarely is.

Trading the headline before the statement. The initial print can be misleading. The statement and press conference often shift the market's interpretation. A stronger process waits for the second wave of information.

Overusing leverage around a binary event. Volatility can move stops by far more than usual. Position sizes that work in calm markets may not survive a central bank surprise. A stronger process scales risk down, not up, into known event risk.

Ignoring the spread. Spreads can widen sharply in the seconds after a release. A tight stop can trigger on the spread alone. A stronger process accounts for typical spread behaviour around the event.

Confusing a strong narrative with a good trade. A clear story does not guarantee a clear setup. Markets often price in narratives well in advance. A stronger process asks what is already in the price.

Chasing the move. Entering after the first sharp candle has already happened can mean buying or selling into exhaustion. A stronger process waits for confirmation or for a clear retracement.

Treating one indicator as a complete strategy. Cash rate decisions interact with positioning, sentiment and global flows. No single signal captures all of that.

Not defining invalidation. Without a clear "if this happens, my view is wrong" line, it becomes easier to hold positions far too long.

Forgetting about other markets. Focusing only on the headline currency can miss confirming or contradicting signals from yields, gold and equity indices.