AUD/USD Price Forecast: Eyes fresh upside move above 0.7150 on hawkish RBA bets
- AUD/USD jumps to near 0.7110 as the AUD outperforms amid hawkish RBA expectations.
- RBA’s Bullock stated that the central bank could raise interest rates to bring inflation back to the 2% target.
- Surging US factory gate inflation could diminish near-term dovish Fed expectations.
The AUD/USD pair trades 0.2% higher to near 0.7110 during the Asian trading session on Tuesday. The Aussie pair trades firmly as the Australian Dollar (AUD) outperforms its peers, following hawkish remarks from Reserve Bank of Australia (RBA) Governor Michele Bullock on the monetary policy outlook.
“Board uncertain if financial conditions are sufficiently restrictive to return inflation to midpoint of target in a reasonable timeframe,” Bullock said earlier in the day. Bullock warned of rising inflationary pressures amid the ongoing war in the Middle East, and the central bank is well-positioned to respond.
In the February meeting, the RBA hiked its Official Cash Rate (OCR) by 25 basis points (bps) to 3.85%, citing upside inflation risks, and kept the door open for further monetary policy tightening.
Meanwhile, the US Dollar (USD) trades broadly firm as its safe-haven demand has increased amid the war between the United States (US), Israel, and Iran.
In the US, soaring inflation at the factory level is expected to strengthen market speculation that the Federal Reserve (Fed) will hold interest rates steady at their current levels in the near term. The ISM Manufacturing PMI report showed on Monday that the sub-component Prices Paid – which tracks changes in prices paid for inputs such as labor and raw materials – soared to 70.5 against estimates of 59.5 and the previous reading of 59.0.
AUD/USD technical analysis
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AUD/USD climbs to near 0.7110 in the Asian trade. The near-term bias is bullish as price holds above the rising 20-day Exponential Moving Average (EMA), which underpins a sequence of higher closes seen over recent weeks. The pair is consolidating just under recent highs, suggesting a pause rather than a reversal while the 20-day EMA continues to track beneath spot.
The 14-day Relative Strength Index (RSI) above 60.00 stays in positive territory, indicating persistent upside momentum without an overbought signal at present.
Initial support emerges at 0.7050, close to the 20-day EMA, with a break below exposing deeper pullback risk toward the psychological level of 0.7000. If that zone fails, focus would shift to the February 6 low around 0.6900 as the next downside level. On the topside, the three-year high around 0.7150 is the immediate resistance, and a daily close above would open the way toward 0.7200. As long as price holds above 0.7050, dips are more likely to attract buyers than signal a sustained bearish reversal.
(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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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