The Australian Dollar has been showing strength, driven by expectations of further rate hikes by the Reserve Bank of Australia (RBA) and positive economic data. The RBA already raised rates in February, and markets are pricing in a high probability of another hike in May. Upbeat economic data, particularly from the services sector, further supports the currency. The US Dollar’s relative weakness also contributes to the Australian Dollar’s gains.
- The Australian Dollar strengthened to around $0.703, approaching three-year highs.
- Markets have increased bets on a May rate hike by the RBA to 80%.
- Around 40 bps of additional tightening is priced in for 2026.
- Australia’s services sector posted its strongest expansion in nearly four years.
- The RBA raised the Official Cash Rate (OCR) by 25 basis points (bps) to 3.85%.
- Composite PMI rose to 55.7 in January, its strongest expansion in 45 months.
- Services PMI climbed to 56.3, marking its highest level since February 2022.
- Inflation pressures remain too strong, and RBA will remain data-dependent.
- Australia’s export prices rose 3.2% quarter-on-quarter (QoQ) in Q4 2025.
The overall environment appears positive for the Australian Dollar. Rising interest rates, driven by a robust economy and persistent inflation, are attracting investors. Strong economic data, particularly in the services sector, reinforces the positive outlook. Even some external factors such as the value of the US Dollar have contributed.