Australian Dollar holds losses ahead of RBA policy decision

• AUD/USD weakens despite the RBA being widely expected to deliver an interest rate hike on Tuesday.

• ASX May 2026 cash rate futures at 95.745 imply a 74% chance of a rate hike to 4.35% at the May meeting.

• The US Dollar rises on safe-haven demand after Iran attacked the UAE.

AUD/USD extends its losses for the second successive day, trading around 0.7160 during the Asian hours on Tuesday. Traders expect the Reserve Bank of Australia (RBA) to deliver an interest rate hike later in the day. As of May 1, the ASX 30 Day Interbank Cash Rate Futures May 2026 contract was trading at 95.745, implying a 74% probability of a rate hike to 4.35%.

The AUD/USD pair declines as the US Dollar (USD) strengthens on safe-haven demand following Iran’s attack on the United Arab Emirates (UAE). CNBC reported Monday that the UAE was targeted by Iranian drones and missiles, while the US said it destroyed Iranian boats in the Strait of Hormuz. US President Donald Trump warned that Iran would be “blown off the face of the earth” if it targets US ships protecting commercial vessels passing through the Strait.

Iran’s Foreign Minister Abbas Araghchi said the current situation in the Strait of Hormuz shows “clearly that there is no military solution to a political crisis.” “As talks are progressing with Pakistan’s gracious effort, the US should be cautious about being pulled back into a quagmire by ill-wishers. The same applies to the UAE,” Araghchi wrote in a post on X. “Project Freedom is Project Deadlock,” he added.

Minneapolis Fed President Neel Kashkari said Sunday that additional rate hikes cannot be ruled out, especially as inflation risks remain elevated due to higher energy prices linked to the Iran conflict.