Australian Dollar gains on RBA rate hike likelihood
- AUD/USD holds gains as AUD is supported by rising RBA rate hike expectations.
- As of April 24, ASX May 2026 futures at 95.745 imply 74% odds of a 4.35% RBA hike.
- The Fed is expected to keep rates unchanged at Wednesday’s April policy meeting.
AUD/USD extends its gains for the third consecutive day, trading around 0.7190 during the Asian hours on Monday. The pair holds gains as the Australian Dollar (AUD) receives support, rising expectations of the Reserve Bank of Australia’s (RBA) rate hikes.
Australia’s March Consumer Price Index (CPI) report will be eyed on Wednesday, with headline annual inflation expected to rise 4.7%, well above the Reserve Bank of Australia’s 2–3% target range. Any upside surprise could reinforce expectations of a 25-basis-point rate hike at the central bank’s May 5 meeting.
As of April 24, the ASX 30 Day Interbank Cash Rate Futures May 2026 contract was trading at 95.745, implying a 74% probability of a rate increase to 4.35% at the upcoming RBA Board meeting.
However, the potential upside of the AUD/USD pair might be limited as market sentiment remains fragile due to stalled US-Iran peace talks. However, Iran offered to end its closure of the Strait of Hormuz if the US lifts its blockade on the country and ends the war in a proposal that would postpone discussions on the Islamic Republic’s nuclear program, per Bloomberg. US President Donald Trump seems unlikely to accept the offer, and US Secretary of State Marco Rubio appeared to rule out any deal that excludes Iran’s nuclear program.
The Federal Reserve (Fed) is widely expected to keep interest rates unchanged at its upcoming April policy meeting on Wednesday, maintaining the federal funds target range at 3.50% to 3.75%. This would mark the third consecutive hold.
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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