Australian Dollar Hits Over 3-Month High

The Australian dollar rose to around $0.70 on Monday, extending gains from the previous week, as the Reserve Bank of Australia signaled a cautious approach to interest rates this year. Speaking to the House of Representatives Standing Committee on Economics, RBA Governor Michelle Bullock stressed that interest rates must remain tight to curb persistent inflation. She also highlighted a resilient labor market, which complicates the timing of potential rate cuts. Still, the Governor emphasized that the board is in no rush to change its restrictive stance, with future decisions guided by incoming data. Figures showed that household spending unexpectedly fell 0.4% mom in December 2025. It was the first monthly decline since March 2024, reflecting the ongoing impact of cost-of-living pressures and elevated interest rates. Adding support to the Aussie dollar, a major Australian pension fund has labeled the Aussie dollar ‘undervalued,’ prompting an increase in its holdings.

The Australian dollar held its recent losses below $0.70 on Friday, pulling back from three-year highs, as broad-based selling across global stocks and risk-sensitive assets weighed on the currency. The commodity-linked Aussie, often used as a liquid proxy for global risk appetite, came under pressure after a tech-led equity rout, fuelled by concerns over massive AI spending, unsettled investors. The retreat also unwound gains from earlier in the week, when the Reserve Bank of Australia lifted its cash rate by 25 basis points to 3.85% and signaled it could tighten further if inflation proves persistent. RBA Governor Michele Bullock reiterated that restrictive policy remains necessary to cool demand and ease price pressures. Markets are pricing about a 70% chance of a May hike to 4.10%, while assigning only a 50% probability of a further increase to 4.35% by year-end. Focus now turns to upcoming household spending figures next week for further cues on the policy outlook.

The Australian dollar held steady around $0.70 on Thursday, trading near three-year peaks, supported by the Reserve Bank’s hawkish policy outlook and robust trade balance data. Figures showed the country's trade surplus widened to AUD 3.37 billion in December 2025, up from November’s three-month low and slightly above market forecasts. The improvement was driven by a rebound in exports amid stronger year-end shipments of metal ores and minerals, while imports fell to a three-month low. The Aussie has also been underpinned since the central bank hiked rates a quarter-point to 3.85% in its February meeting, leaving the door open to further tightening. Markets imply around an 80% chance of a hike at its May policy meeting, and a 50% probability that rates could end the year at 4.35%. Elsewhere, the AUD climbed to a thirty-five-year high against the Japanese yen, while the US dollar was broadly stronger as markets priced in a slower pace for potential Federal Reserve rate cuts.