The Australian dollar is experiencing a period of strengthening, fueled by inflation data exceeding expectations and a hawkish stance from the Reserve Bank of Australia (RBA). The currency has broken above the 0.7100 level against the US dollar, supported by positive domestic fundamentals, a relatively stable Chinese economy, and investor sentiment. While the RBA remains data-dependent, market expectations are leaning towards further interest rate hikes.
- Australian inflation exceeded expectations, with the annual rate at 3.8% in January 2026.
- The RBA’s trimmed mean CPI increased to 3.4%, indicating underlying inflationary pressures.
- Markets anticipate a potential interest rate hike by the RBA in May, possibly reaching 4.1%, with a significant chance of another increase in November.
- AUD/USD has overcome short-term pessimism and is trading around 0.7100, benefiting from a weaker US dollar and a positive risk tone.
- Australia’s economy is moderating but not collapsing, with PMIs remaining in expansion territory, retail spending holding up, and GDP showing moderate growth.
- The labor market is stable, though not spectacular, with unemployment holding steady at 4.1%.
- China acts as a steady anchor for the Australian Dollar, although it isn’t providing a major boost.
- Commodity Futures Trading Commission (CFTC) data reveals that non-commercial traders have increased net long positions in the Aussie dollar.
Overall, the Australian dollar is in a position to potentially further increase in value, depending on incoming economic data and global risk sentiment. Inflation figures and the RBA’s response remain key factors. While external events like shifts in US data, trade dynamics, or geopolitical situations can trigger quick changes in the AUD/USD exchange rate, the underlying strength of the Australian economy and investor confidence are providing support.