RBA Deputy Governor Andrew Hauser said inflation is still too high, and the bank will take whatever action is needed to bring it back into the target band. He added that some price increases may ease, while others seem tied to supply constraints.
At the time of writing, AUD/USD was near 0.7095, up 0.29% on the day. The RBA targets inflation of 2–3% by adjusting interest rates. It can also use quantitative easing or tightening to influence credit conditions.
Australian Dollar Key Drivers
The Australian Dollar is mainly driven by RBA interest rate policy and commodity prices, especially iron ore. Iron ore is Australia’s biggest export, worth $118 billion a year based on 2021 data, and China is the main buyer.
China is Australia’s largest trading partner, so China’s growth affects demand for Australian exports and the AUD. The trade balance matters too: when export earnings are stronger than import costs, it usually supports the currency.
The RBA’s message is clear: inflation is too high, and it will do what it takes to bring it down. Inflation stayed above the target band through the last quarter of 2025, reaching 3.9%. This points to interest rates staying higher for longer, and it leaves open the possibility of another hike. Higher rates are typically supportive for the currency.
That hawkish tone is also backed by iron ore prices. In recent weeks, prices have held above $125 a tonne on the Singapore Exchange. Strong iron ore prices can improve the trade balance and provide fundamental support for the Australian dollar.
China Demand And Trading Approach
Even so, demand from China needs close attention. China’s economy reportedly grew 5.1% in 2025, but the latest manufacturing PMI readings have been near the 50 level. This suggests the recovery remains uncertain. Any clear slowdown could weigh on the Aussie dollar.
With the RBA focused on inflation, traders may want to be positioned for possible AUD strength in the weeks ahead. With AUD/USD already near 0.7095, buying call options may offer a way to gain upside exposure while limiting downside risk if weak Chinese data surprises the market. Pullbacks in the currency could be viewed as potential buying opportunities, since the domestic policy direction still looks firm.
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