The Australian Dollar (AUD) experienced a notable surge this week, reaching a fresh three-and-a-half-year high above 0.7140 against the US Dollar (USD). This rally follows a clearly hawkish stance from the Reserve Bank of Australia (RBA), which has indicated its readiness to raise interest rates further. Despite a slight pullback of approximately 0.5% on Thursday, the AUD remains in a strong bullish position, trading near multi-year highs.
RBA Governor Michele Bullock emphasized the bank’s commitment to addressing inflation, labeling any inflation rate starting with a three as “unacceptable.” Her comments were echoed by Deputy Governor Hauser, who noted that inflation levels persistently exceed expectations, presenting ongoing challenges for the rate-setting body. Earlier this month, the RBA raised its cash rate by 25 basis points to 3.85%, and current market forecasts indicate a 74% chance of another hike in May, with a potential tightening of 38 basis points anticipated by year-end.
Inflation expectations among consumers have risen to 5% in February, marking the highest level since mid-2025. This development aligns with the RBA’s hawkish narrative, although concerns about softer demand for Australian exports, highlighted by a decline in the Chinese Consumer Price Index, tempered gains.
On the US side, January’s Non-Farm Payrolls report showed an increase of 130,000 jobs, while the unemployment rate fell to 4.3%. This data has moderated expectations for immediate interest rate cuts by the Federal Reserve. Market participants are now focused on the upcoming release of the delayed US Consumer Price Index (CPI) for January, which is expected to show a 0.29% month-on-month increase in headline CPI and a 0.39% rise in core CPI. A weaker-than-anticipated CPI could further widen the policy divergence between the Fed and the RBA, potentially benefiting the Australian Dollar.
Technical Analysis and Market Outlook
From a technical standpoint, AUD/USD is currently holding around 0.7118, having reached a session high of 0.7148, the highest point since February 2023. The pair has maintained a bullish trend for six consecutive weeks, trading significantly above both the 50-week and 100-week Exponential Moving Averages. The Average Directional Index has climbed to 23, signaling a strengthening trend. The Relative Strength Index continues to rise but is approaching overbought territory on the daily chart.
On the four-hour timeframe, the pair retreated from the 0.7148 high to test support near the previous resistance zone at 0.7100, which now serves as a near-term pivot point. A significant swing high from September 2024 at 0.6932 has been decisively surpassed, establishing a key support level for any deeper pullbacks. Immediate resistance remains at the 0.7148 session high; breaking above this level could target the psychologically significant 0.7200 mark and the 0.7250 zone. Conversely, a failure to maintain support at 0.7100 may lead to a pullback toward the 0.7050 to 0.7000 demand zone, where buying interest is expected to re-emerge.
Key Factors Influencing the Australian Dollar
Several factors play a critical role in determining the value of the Australian Dollar. One of the primary influences is the interest rates established by the Reserve Bank of Australia. As a resource-rich nation, the price of Australia’s largest export, iron ore, also significantly impacts the currency’s value. Additionally, the health of the Chinese economy, Australia’s largest trading partner, is crucial, as is the country’s inflation rate, growth metrics, and trade balance.
The RBA’s decisions directly affect the Australian Dollar by influencing the interest rates banks use for lending. This, in turn, impacts overall economic rates. The RBA aims to maintain an inflation rate between 2-3% by adjusting interest rates. When rates are relatively high compared to major central banks, it tends to support the AUD, while lower rates have the opposite effect.
The health of the Chinese economy is particularly important due to its status as Australia’s largest trading partner. A thriving Chinese economy increases demand for Australian exports, bolstering the AUD, whereas slower growth can weaken it. Fluctuations in Chinese growth data often have immediate effects on the value of the Australian Dollar.
Iron ore prices, accounting for approximately USD 118 billion in annual exports as of 2021, also heavily influence the AUD. A rise in iron ore prices generally leads to increased demand for the currency, while falling prices have the opposite effect. Furthermore, a favorable trade balance—where export earnings exceed import costs—strengthens the AUD.
In summary, the Australian Dollar is navigating a complex landscape shaped by domestic monetary policy, international trade dynamics, and global economic conditions. Future movements will largely depend on the RBA’s actions and the performance of key trading partners, particularly China.
