The Australian Dollar has experienced a significant rally, reaching a three-and-a-half-year high, driven by hawkish signals from the Reserve Bank of Australia (RBA) regarding potential further interest rate hikes. While US data provided some resistance, strong inflation expectations in Australia continue to support the currency above the 0.7100 level against the US Dollar.
- RBA Governor Michele Bullock indicated the board is prepared to raise rates further if inflation persists, deeming inflation “with a three in front of it” unacceptable.
- Deputy Governor Hauser previously noted that inflation remains too high and a major challenge.
- Australian Consumer Inflation Expectations rose to 5% in February, the highest since mid-2025.
- The RBA already hiked interest rates for the first time in over two years, hinting at further tightening to reach its 2% inflation target.
- Economists widely anticipate a possible rate hike in May, pending first-quarter inflation, employment, and GDP data.
- The AUD/USD pair experienced a rally due to monetary policy divergence between the RBA and the US Federal Reserve.
- Upbeat US Nonfarm Payrolls provided some support to the US Dollar, but its impact was moderate.
The information suggests a positive outlook for the Australian Dollar. The RBA’s commitment to tackling inflation through potential interest rate hikes strengthens the currency’s appeal to investors. Rising inflation expectations within Australia further solidify the likelihood of further monetary policy tightening, which should provide further support to the currency against other currencies, particularly the US dollar, despite positive US economic data.