Aussie Dollar Near 3-Year Peak on RBA Hawkish Outlook

The Australian dollar rose to around $0.70 on Monday, snapping a two-session losing streak, as investors turned their focus to the upcoming release of the latest minutes from the Reserve Bank of Australia. Although Governor Michelle Bullock has already discussed the board’s decision in press conferences and during two federal parliamentary hearings, Tuesday’s minutes are expected to provide deeper insight into the rationale behind the recent 25 bps rate hike. The governor signaled that a renewed uptick in inflation left the central bank with little choice but to tighten policy, noting that the strength of consumer spending and business investment had been unexpected for the board. Markets are also looking ahead to Q4 wage data on Wednesday and January’s labor market report on Thursday, both of which are expected to offer further clues about the monetary policy outlook and the broader state of the economy.

The Australian dollar hovered to around $0.71, trading near three-year highs after the central bank signaled a hawkish policy outlook. RBA Governor Michele Bullock said the board remains ready to lift rates further if inflation proves persistent, describing any inflation “with a three in front of it” as unacceptable. Her comments reinforced warnings from Deputy Governor Hauser, who noted just a day earlier that inflation remains too high and continues to pose a major challenge for the rate-setting board. A consumer survey was released shortly after Bullock's speech showing inflation expectations jumped to 5% in February, the highest since mid-2025, reinforcing the hawkish tone. Speaking at Perth, Assistant Governor Hunter added that she expects the labor market to remain tight and inflation above target for some time. Economists now widely expect a possible rate hike in May, as the RBA weighs first-quarter inflation data alongside upcoming employment and GDP reports.

The Australian dollar strengthened to around $0.71 on Wednesday, hitting its highest level since August 2022 after RBA Deputy Governor Andrew Hauser warned that inflation remains too high. He said the central bank is prepared to tighten further if needed to return inflation to the 2–3% target band, noting some pressures are supply-driven and may persist. Hauser also emphasized that Australia’s economy is broader than the resources sector, with domestic demand holding up despite higher rates. His remarks reinforced a continued tightening bias, keeping the risk of another rate hike alive unless inflation surprises earlier. Markets currently imply a 74% chance of a May rate increase to 4.1%, with a total of 38 basis points of additional tightening priced in for the remainder of the year. Elsewhere, the Chinese-proxy Aussie faced some pressure after slower-than-expected consumer inflation and ongoing producer price deflation in China signaled weaker demand for Australian exports.