AUD/USD rose for a second day, trading near 0.7160 in early European hours on Monday. The move followed support for the Australian Dollar linked to higher energy prices and firmer expectations of Reserve Bank of Australia (RBA) rate rises.
Australia’s March CPI report is due on Wednesday, with annual inflation forecast at 4.7% versus the RBA’s 2–3% target range. A higher reading could support expectations of a 25-basis-point rise at the May 5 meeting, and ASX 30 Day Interbank Cash Rate Futures (May 2026) at 95.745 implied a 74% chance of a move to 4.35% as of April 24.
Usd Weakness And Geopolitical Developments
The pair also gained as the US Dollar fell, despite demand for safe-haven assets. The Dollar’s decline was tempered by renewed strain on a ceasefire, with Israel and Hezbollah increasing attacks despite a US-backed extension aimed at pausing fighting for three weeks.
US President Donald Trump cancelled a planned delegation to Pakistan linked to possible talks with Iran, telling Jared Kushner and Steve Witkoff not to travel. Bloomberg reported Iran presented a proposal to reopen the Strait of Hormuz and pause nuclear talks, alongside extending the ceasefire.
Looking back to this time in 2025, we saw the market pricing in a 74% chance of a Reserve Bank of Australia rate hike, with inflation expected to hit 4.7%. Today, the picture is quite different as the latest data shows annual CPI inflation has cooled to 3.6% in the first quarter of 2026. This has led the RBA to hold its cash rate at 4.35% with a more neutral tone, suggesting the upward pressure on the Aussie dollar from interest rate expectations has faded.
A year ago, surging energy prices were providing a strong tailwind for the AUD. While commodity prices remain a key driver, iron ore, Australia’s biggest export, has seen its price fall from over $130 per tonne earlier in the year to around $115 per tonne today. This softening in key commodity prices removes a significant pillar of support that the Australian dollar enjoyed back in 2025.
The US Dollar was declining in April 2025 despite rising geopolitical tensions in the Middle East. Currently, the US Dollar Index (DXY) has been strengthening, recently trading above 106.0 as Federal Reserve officials signal a ‘higher for longer’ stance on interest rates. This renewed dollar strength presents a major headwind for the AUD/USD pair, a reversal from the dynamic we observed last year.
China Growth And Outlook For Australian Exports
We must also consider the health of China’s economy, which was a source of optimism for Australian exports in the past. Recent data from the National Bureau of Statistics showed China’s GDP grew 5.3% in the first quarter of 2026, but other indicators like industrial output have been weaker than expected. This mixed economic picture from Australia’s largest trading partner suggests demand for its resources may not be as robust in the coming months, capping potential gains for the Aussie.
