Australian Dollar gains on hawkish remarks from RBA’s Bullock
- Australian Dollar gains support after hawkish remarks from RBA Governor Michele Bullock.
- RBA Governor Bullock said the Board is unsure if policy is restrictive enough to return inflation to the target midpoint.
- Trump said the “big wave” of strikes against Iran in the ongoing conflict is still to come.
AUD/USD continues its recovery for the second successive session, trading around 0.7100 during the Asian hours on Tuesday. The pair appreciates as the Australian Dollar (AUD) receives support from hawkish comments from the Reserve Bank of Australia (RBA) Governor Michelle Bullock.
Governor Bullock said the Board remains uncertain whether financial conditions are restrictive enough to return inflation to the midpoint of the target range within a reasonable timeframe. Bullock noted that a range of indicators continues to point to tight labor market conditions. Economic data released since the February rate hike broadly justify that decision. She also highlighted that developments in the Middle East serve as a reminder of persistent geopolitical uncertainty, warning that a prolonged shock could weigh on global economic activity.
Australia’s seasonally adjusted Building Permits fell 7.2% month-over-month (MoM) to a 19-month low in January 2026, missing expectations for a 5.5% increase. On an annual basis, dwelling approvals plunged 15.7%, reversing 0.4% rise in December 2025.
The Reserve Bank of Australia unanimously raised the cash rate by 25 basis points (bps) to 3.85% at its first meeting of 2026. Markets now turn to the Q4 Gross Domestic Product (GDP) report due Wednesday for further insight into economic momentum and the RBA’s likely policy path.
Meanwhile, the risk-sensitive AUD/USD pair may face challenges as the US Dollar (USD) stays firm amid heightened risk aversion linked to escalating tensions in the Middle East. Marco Rubio stated that the United States (US) is preparing for a “major uptick” in attacks in Iran over the next 24 hours.
According to CNN, US President Donald Trump said that the “big wave” is still to come. The United States Department of State has urged US citizens to leave countries across the Middle East immediately due to serious safety risks.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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