Australian Dollar Gains on Bullock’s Remarks

The Australian dollar rose to around $0.71 on Tuesday, trimming some losses from the previous session as markets increasingly priced in a potential Reserve Bank of Australia cash rate hike. RBA Governor Michele Bullock signaled that the central bank’s March policy meeting would be “live” for a possible rate increase, marking a shift from her recent emphasis on patience. She also warned that an oil price shock stemming from tensions involving Iran could reignite domestic inflationary pressures, noting that recent clashes between Iran and the US underscore how quickly global conditions can change. Market pricing now suggests around a 28% chance of a 25 bps rate hike, while fully pricing in tightening through May. Markets also see roughly a 75% chance of another increase to 4.35% by the end of the year. The Aussie also drew support from an atypical haven demand, with its energy wealth helping to counter rising oil costs.

The Australian dollar slipped to around $0.70 on Monday, erasing last week’s gains as investors sought safe-haven assets like the greenback amid escalating conflict in the Middle East. The US and Israel carried out coordinated strikes on Iran over the weekend, resulting in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei. Iran responded with retaliatory attacks targeting US assets in neighboring countries, rattling global financial markets. Heightened geopolitical uncertainty weighed on risk-sensitive currencies, including the Aussie, which is often seen as a proxy for global growth and commodity demand. Domestically, the manufacturing PMI was revised down to 51 in February 2026 from a preliminary reading of 51.5, marking the lowest level in four months and easing from 52.3 in the previous month. Meanwhile, the Melbourne Institute’s Monthly Inflation Gauge fell 0.2% month-on-month in February, reversing a 0.2% rise in January and marking the first decline since last August.

The Australian dollar traded around $0.711 on Friday, moving near more than three-year highs, and headed for its fourth consecutive monthly gain amid mounting bets of a hawkish policy outlook. The currency is on track to rise about 2% in February and is up more than 6% year-to-date, making it the top-performing G10 unit as resilient domestic conditions bolster expectations for further tightening by the Reserve Bank. Money markets are assigning roughly an 80% chance of a rate hike in May following an upside surprise in January inflation, with 40 basis points of total tightening this year. Still, many economists see the cash rate peaking near 4.10%, close to levels reached during the post-pandemic inflation cycle. Governor Michele Bullock also reiterated that patience remains appropriate with the economy near balance, tempering expectations of an aggressive hiking path. Investors now look to next week’s final manufacturing PMI and GDP figures for clearer signals on growth momentum.