The Australian Dollar extends its gains on Wednesday amid growing speculation that the Reserve Bank of Australia (RBA) will raise rates at next week’s meeting. At the time of writing, the AUD/USD trades at 0.7152, up 0.47%.
Aussie gains on expectations the RBA may tighten policy despite geopolitical uncertainty
The financial markets remain laser-focused on geopolitical developments in the Middle East. Hostilities between Israel and Hezbollah escalated amid mixed comments from the White House. Recently, the US President Donald Trump, in an interview with Axios, said that there are no targets left in Iran, and that at “any time I want it to end, it will end.”
Oil prices reversed their course, poised to end on a higher note, with WTI trading at $87.57 a barrel, up nearly 5%. This raises questions about the impact on inflation, despite the International Energy Agency (IEA) recommending tapping 400 million barrels. Additionally, one of the biggest ship insurers, Lloyd’s of London, said that all ships in the Strait of Hormuz will be insured.
RBA expected to raise rates next week
Given the backdrop, some banks, including Bank of America, Goldman Sachs, Westpac, and the National Australia Bank, expect a rate hike by the RBA.
RBA’s Deputy Governor Andrew Hauser said on Tuesday that there would be a “genuine” debate over whether to hike rates at next week’s meeting. Although there are reasons on both sides, he said, “Inflation is too high,” and that the ongoing Middle East conflict could push prices even higher.
US inflation data ignores the US-Israel and Iran conflict
On the data front, the US Consumer Price Index (CPI) in February was in line with estimates across headline and core readings. The CPI rose by 2.4% YoY, unchanged from January, while core CPI jumped by 2.5% YoY.
The data was benign, but traders should note that it fails to reflect the impact of high Oil prices triggered by the Middle East conflict.
Ahead, the Aussie’s economic docket will feature Consumer Inflation Expectations. In the US, traders will eye jobless claims, housing data and the Balance of Trade.
AUD/USD Price Forecast: Technical outlook
In the daily chart, AUD/USD trades at 0.7153. The near-term bias is bullish, with price extending above the cluster of rising simple moving averages that trail far below spot and confirm a well-established uptrend. The pair also respects a steeper ascending support line from 0.6897, indicating buyers defend progressively higher lows after the prior breakout above the broader rising trend line from 0.6673. RSI has rebounded from mid-50s to the low-60s, showing renewed positive momentum without entering overbought territory, which supports continuation rather than exhaustion at current levels.
Initial support emerges near 0.7120, where recent closes align with the higher ascending trend line and mark the latest reaction low, followed by 0.7050, close to prior consolidation and along the earlier rising support from 0.6673. A deeper pullback would expose the 0.7000 region, where price previously pivoted higher and the moving averages begin to gain relevance. On the upside, immediate resistance sits near 0.7200 as the next psychological barrier above spot, with a sustained break opening the path toward 0.7275, in line with the projected extension of the rising structure. A close back below 0.7050 would weaken the bullish bias and suggest a broader consolidation phase rather than trend extension.
(The technical analysis of this story was written with the help of an AI tool.)
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
Source: https://www.fxstreet.com/news/aud-usd-surges-past-07150-as-rba-hike-bets-strengthen-202603112024
