The RBA just raised rates to 4.85% — so why isn’t the Australian dollar surging?

The Reserve Bank of Australia has raised interest rates again, but the Australian dollar is struggling to turn that support into a sustained breakout.

The RBA lifted the cash rate by 25 basis points to 4.85%, its fifth increase of 2026, after concluding that inflation remains too high and is likely to stay elevated for longer. Yet AUD/USD was still trading around 0.697 after the decision, below the psychologically important 0.70 level.

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That may look surprising. Higher Australian rates normally make the currency more attractive because investors can earn more on Australian-dollar assets.

But currencies are relative trades. The US Federal Reserve is also keeping rates high, Australia's economy is slowing and commodity signals remain mixed. Much of the RBA increase was also already anticipated before the announcement.

For AUD/USD traders, the question is therefore not simply how high Australian rates go. It is whether Australia starts looking more attractive than the US while China and commodity demand provide enough additional support.

The first issue is expectations. Currency markets rarely wait for a central bank announcement before moving. Traders had already spent weeks pricing in another RBA increase as inflation remained stubborn and policymakers warned that price pressures were proving stronger than expected.

When the decision finally arrived, the surprise was therefore limited.

The RBA also stopped short of signalling that another hike was guaranteed. Its statement said policy would remain responsive to incoming data while acknowledging that previous increases are already slowing the economy, weakening housing and weighing on household spending.

That creates a very different currency reaction from an unexpected rate increase accompanied by clearly hawkish guidance.

The Australian dollar initially had the higher rate it had been waiting for, but traders still had to ask how many more increases could realistically follow before weaker domestic conditions become the bigger problem. That is why AUD/USD can struggle even after a rate hike. The market trades what comes next, not what has already happened.

Australia now has a higher policy rate than the US, but the gap alone does not determine AUD/USD.

The Fed held its target range at 3.75%–4.00% at its latest meeting, with inflation still elevated and two policymakers preferring another increase. US economic activity also remains strong, giving the Fed relatively little urgency to begin easing.

That keeps the US dollar competitive. If traders become convinced the RBA has more tightening ahead while the Fed is close to done, the interest-rate gap could move further in Australia's favour and strengthen AUD/USD.

If the reverse happens, the currency could struggle even with Australian rates at 4.85%.

That makes upcoming inflation and employment data important on both sides of the pair. Australian data need to remain firm enough to keep the RBA restrictive without deteriorating so sharply that traders start worrying about growth.

US data matter for the opposite reason. Strong inflation or employment would keep the Fed firmly in the picture, while softer numbers could weaken the dollar and give AUD/USD more room to rise.

For traders, the relative path matters more than either policy rate in isolation.

The RBA's latest forecasts show why traders are reluctant to treat higher rates as an automatic win for the Australian dollar. Inflation is expected to stay above the 2–3% target range for longer than previously forecast, but the economy is also slowing. Housing prices have fallen, unemployment has risen and higher borrowing costs are expected to weigh further on household consumption and residential investment.

That creates an uncomfortable trade-off. Another increase could improve Australia's interest-rate advantage and initially support AUD/USD. But repeated hikes also raise the risk that consumer spending, housing and employment weaken enough to undermine confidence in the broader economy.

The Australian dollar therefore needs more than high rates. Traders also need to believe those rates can remain high without producing a much sharper slowdown. That helps explain why 4.85% has not automatically produced a much stronger currency.

Australia's commodity exports remain another major influence on the dollar, but the signal is far from uniform. The RBA's commodity-price index is 12.5% higher than a year ago in SDR terms, supported by broadly stronger commodity prices. Copper and several base metals remain elevated, while energy prices have also risen sharply.

Iron ore is the notable exception. The RBA says iron ore prices have softened as global supply remains abundant. That matters because iron ore remains one of Australia's most important exports and is closely tied to Chinese steel demand.

The result is another mixed signal for AUD/USD. Strong copper, energy and other commodity prices support Australia's terms of trade and export earnings. Softer iron ore reduces some of that support.

That is why the old shorthand of “commodities up, Aussie up” is less reliable at the moment. Traders need to look at which commodities are actually moving and what they say about Australia's largest export markets.

China still matters enormously for the Australian dollar because it is Australia's largest trading partner and a major buyer of commodities. But recent conditions are difficult to reduce to one bullish or bearish signal.

Global growth among Australia's major trading partners has been stronger than expected, helped by AI-related investment and fiscal support. At the same time, softer iron ore prices show that strength is not flowing evenly into every part of Chinese commodity demand.

For AUD/USD traders, that means Chinese growth data, the yuan and industrial commodity prices can sometimes point in different directions.

Stronger Chinese activity accompanied by firmer iron ore and copper would provide a much clearer tailwind for the Australian dollar. Weak industrial demand or renewed pressure on the yuan could offset some of the support coming from Australian interest rates.

China therefore remains a major part of the AUD/USD story, but it is no longer enough to watch one headline number.

AUD/USD has spent much of the recent period around the 0.70 area, making it an important psychological and technical level. The RBA's official reference rate was 0.6972 on November 4, showing that the latest rate increase was still not enough to establish a sustained move above 70 US cents.

A convincing break above 0.70 would suggest traders are becoming more willing to price in Australia's higher interest-rate advantage.

Holding above that level would be more meaningful if it were accompanied by softer US data, stronger commodities or further evidence that the RBA may stay tighter than the Fed.

Failure to hold 0.70 would keep attention on the downside instead, particularly if Australian growth weakens or the US dollar regains momentum.

For active traders, that makes 0.70 more useful as a market signal than a forecast. The reaction around the level can show whether the latest RBA tightening is actually changing sentiment towards the Australian dollar.

• Australian inflation: Persistent price pressure would keep another RBA hike in play.

• Australian employment: A sharp weakening could reduce expectations for further tightening.

• US inflation and jobs: Strong data could keep Fed policy restrictive and support the US dollar.

• Commodity prices: Copper and iron ore can provide useful signals about external demand for Australian exports.

• Chinese activity: Stronger industrial growth would improve the backdrop for the Australian dollar.

• The 0.70 level: A sustained break above it would strengthen the bullish case, while repeated failures could keep AUD/USD range-bound.

Trading AUD/USD with Mitrade

AUD/USD is being pulled by competing forces rather than one dominant driver. Higher Australian rates support the currency, but the Fed remains restrictive, domestic growth is slowing and commodity signals are mixed. That creates opportunities in both directions as expectations around the RBA, Fed and China change.

Eligible Australian clients can use Mitrade CFDs to take a long position on AUD/USD if they expect the Australian dollar to strengthen against the US dollar or a short position if they expect further weakness.

Stop-loss and take-profit orders can help define exit levels, while pending orders allow positions to open when selected prices are reached. Currency markets can move sharply around inflation releases, employment data and central-bank decisions, so leverage and position sizing remain important.

Mitrade is regulated in Australia by ASIC. Forex CFDs are leveraged products, so both potential gains and losses can be magnified.

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