Australian Dollar Hits 3 ½-Year High

The Australian dollar appreciated to around $0.713 on Thursday, hitting its highest level since early August 2022 amid mounting expectations of another rate hike. Markets are pricing in roughly an 80% probability that the Reserve Bank will lift its 3.85% cash rate in May after January inflation surprised on the upside. Markets also anticipate about 40 basis points of total hikes this year, though many analysts see the terminal rate near 4.10%, around the peak reached during the post-pandemic inflation surge. Meanwhile, a move as soon as March appears less likely, as policymakers will not receive the full first-quarter inflation report until late April. RBA Governor Michele Bullock also reiterated that policy patience is warranted with the economy close to equilibrium, tempering expectations of an aggressive tightening cycle. Attention now turns to the final reading of manufacturing PMI and GDP figures due next week for further clues on the country’s economic momentum.

The Australian dollar strengthened to around $0.70 on Wednesday, extending gains from the previous session as hotter-than-expected inflation data fueled expectations of additional interest rate hikes this year. The annual inflation rate stood at 3.8% in January 2026, surpassing market expectations of 3.7%. Meanwhile, the RBA’s trimmed mean CPI, a key measure of underlying inflation, ticked higher to 3.4%, compared to both market forecasts and December’s 3.3%. The latest data followed a recent report showing that unemployment held at a historically low level in January, while wage growth remained elevated. Markets are now expecting the central bank to lift the cash rate again in May, potentially to 4.1%, with around a 60% chance of another increase in November. Nevertheless, the central bank, which earlier this year became the first major developed-market central bank to resume raising interest rates, has maintained a data-dependent stance.

The Australian dollar steadied around $0.706 on Tuesday, trading near three-year peaks as investors brace for upcoming inflation data expected to reinforce a hawkish policy outlook. January’s consumer price figures, due Wednesday, are forecast to show the annual pace slowing only slightly to 3.7% from 3.8%, while core inflation is expected to hold at 3.3%, its fifth consecutive month above the central bank’s 2–3% target band. A 0.9% gain in the December quarter triggered the recent hike, and a repeat in the March quarter could further heighten pressure for another rate hike in May. Markets price in roughly a 70% probability of a 25-basis-point rate hike to 3.85% in May, with a June increase nearly fully priced in. All eyes will also be on RBA Governor Bullock at a Melbourne University event Wednesday evening, with any hawkish signals likely to boost the Aussie further. A weaker US dollar added support amid lingering uncertainty surrounding President Donald Trump’s tariff plans.