The pound is hovering at its highest level against the Australian dollar in more than a year, but Tuesday's RBA interest rate decision could determine whether the pair is just in temporary trouble or out of its recent rally, market analyst James Skinner said.

At 12:30 Beijing time on July 4, the Reserve Bank of Australia will announce its interest rate resolution, which is also one of the focuses of the market this week.

On June 6, Beijing time, the Reserve Bank of Australia unexpectedly raised its benchmark interest rate by 25 basis points to 4.10%, continuing to brush a new high since 2012, and the market expects to maintain interest rates unchanged.

Official data on Wednesday showed Australian inflation eased to 5.6 per cent in May from 6.8 per cent previously, leading many economists and financial markets to expect the Reserve Bank of Australia to keep the cash rate unchanged on Tuesday.

However, economists at Westpac and others warn that inflation in Australia is higher than it appears.

Westpac chief economist Bill Evans said with core inflation remaining above 6 per cent and the unemployment rate nearly 1 percentage point lower than the RBA's forecast, the cash rate needed to move higher.

Forecasting the RBA's cash rate hike to 4.35 percent on Tuesday, Evans added: "A second pause by the RBA to gather further information seems unnecessary and will only extend the cycle further into 2023, when the likelihood of damage to the economy will increase substantially."

Westpac economists said on Thursday that once you strip out the prices of holiday packages and some other volatile items, the inflation picture is much less benign than the latest headline inflation data suggests, so they expect the cash rate to rise further soon.

Market analyst James Skinner said the Australian dollar could benefit if the RBA raises rates this week, and could be enough to derail the rally in sterling against the Australian dollar, one of the sterling currency pairs that has risen markedly in recent weeks as the market has signaled a sharp rise in expectations for the Bank of England's Bank rate.

Carol Kong, an economist at Commonwealth Bank of Australia, said: "The Australian dollar and sterling are stronger than we expected. The strength of these currencies largely reflects the hawkish attitudes of their respective central banks, which has led to increased expectations of rate hikes."