Key Points
- AUDUSD climbed to around 0.7088, extending gains after a 1.3% rally overnight.
- The RBA raised rates to 4.10%, with a narrow 5–4 split vote, signalling ongoing inflation concerns.
- Markets now price a 40% chance of another hike in May, with 4.35% expected by August.
The Australian dollar pushed higher on Tuesday, building on recent momentum as markets reacted to a more hawkish-than-expected tone from the Reserve Bank of Australia.
AUDUSD rose toward 0.7088, adding to a strong rally from the previous session, as traders reassessed the path of interest rates following the RBA’s latest policy decision.
While the central bank’s 25 basis point hike to 4.10% was widely expected, the reaction was driven by forward guidance rather than the move itself. The decision revealed a narrow 5–4 split, highlighting growing urgency among policymakers to address persistent inflation.
Hawkish Messaging Supports the Currency
RBA Governor Michele Bullock emphasised that the disagreement within the board was not about direction, but timing. The key question was whether to raise rates immediately or wait until May.
This distinction reinforced expectations that further tightening remains likely, especially with inflation still running above target. Core inflation at 3.4% continues to exceed the RBA’s 2%–3% target band, keeping pressure on policymakers to act.
Markets responded quickly. The probability of a May rate hike increased to 40%, up from 25%, while a move to 4.35% is now fully priced by August.
If inflation remains sticky, AUDUSD may stay supported. However, any signs of easing price pressures could temper expectations for further hikes and cap upside.
Yield Differentials Add Support
The Australian dollar is also benefiting from supportive yield dynamics. Australian 10-year bond yields are holding near 4.961%, having recently tested the 5.0% level, the highest since mid-2011.
The spread between Australian and U.S. yields has widened to 72 basis points, making Australian assets more attractive to global traders and supporting capital inflows into the currency.
This yield advantage is a key pillar for AUD strength, particularly in a global environment where central banks are reassessing their policy stance.
Technical Analysis
The AUDUSD pair is trading near 0.7067, holding relatively steady despite a slight intraday dip of around 0.05%. Price action suggests the pair is entering a consolidation phase after a sustained uptrend that began in late December, where it rallied from lows near 0.6421 to a recent high of 0.7187.
From a technical perspective, the short-term structure remains supported but is beginning to lose momentum. The 5-day (0.7070) and 10-day (0.7065) moving averages are tightly clustered around the current price, indicating a lack of directional conviction. Meanwhile, the 20-day (0.7071) and 30-day (0.7066) averages are also converging, reinforcing the view that the market is compressing and preparing for a potential breakout.
Immediate support is seen around the 0.7040–0.7050 region, where recent pullbacks have stabilised. A break below this zone could open the door toward 0.7000, a key psychological level. On the upside, resistance remains at 0.7180–0.7200, marking the recent swing high and a barrier that bulls have yet to decisively clear.
Overall, AUDUSD appears to be range-bound in the near term, with the broader bullish structure still intact as long as price holds above 0.7000.
However, the current compression in moving averages suggests that a decisive breakout—either higher or lower—may be approaching, depending on macro catalysts such as US dollar strength or shifts in risk sentiment.
What Traders Should Watch Next
The near-term direction for AUDUSD will likely depend on whether markets continue to price in further RBA tightening.
Key catalysts include upcoming inflation data, RBA commentary, and shifts in global risk sentiment. Traders will also monitor whether the pair can sustain momentum above the 0.7080 area and challenge the 0.7122 resistance level.
For now, the Australian dollar appears supported by a combination of hawkish policy expectations, strong yields, and resilient technical structure, though global uncertainties remain a key risk to the outlook.
Learn more about trading Forex Pairs on VT Markets here.
FAQs
Why is AUDUSD Rising Right Now?
The Australian dollar is gaining strength after the Reserve Bank of Australia (RBA) delivered a rate hike and signalled that further tightening remains likely due to persistent inflation risks.
What Did the RBA Decide at Its Latest Meeting?
The RBA raised its cash rate by 25 basis points to 4.10%, reaching a 10-month high. The decision was closely contested, with a 5–4 split vote among policymakers.
Why Did Markets View the RBA as Hawkish?
Governor Michele Bullock indicated the debate was about timing rather than direction, suggesting further rate hikes are still on the table if inflation does not return to target.
What Are Markets Pricing for Future RBA Policy?
Markets have increased expectations for another rate hike, with around a 40% probability of a move in May, and a rate of 4.35% fully priced by August.
How is Inflation Affecting the Australian Dollar?
Core inflation remains elevated at 3.4%, above the RBA’s target range of 2% to 3%. Persistent inflation supports a hawkish policy outlook, which tends to strengthen the currency.
Start trading now – Click here to create your real VT Markets account
