Australian Dollar Hits Near 4-year High

AUDUSD increased to 0.72, the highest since June 2022 as the greenback weakened broadly and investors position ahead of next week’s policy decision from the Reserve Bank of Australia. The DXY was trading at the lowest level in two months with losses driven largely by a sharp advance in the yen following intervention by Japanese authorities. Meanwhile, markets expect a 25 bps rate hike on May 5, which would mark a third straight increase and lift the cash rate to 4.35%. Expectations are also building that rates could climb to 4.60% or higher by year-end, as inflationary pressures remain a key concern amid the closure of the Strait of Hormuz, which has disrupted global supply chains. Australia’s annual inflation rate climbed to 4.6% in March, well above the central bank’s 2–3% target and the highest since monthly CPI reporting began in 2025. Meanwhile, the manufacturing PMI rose to 51.3 in April, surpassing both preliminary estimate of 51 and March’s reading of 49.8.

The Australian dollar held its gains around $0.72 on Friday, heading for a weekly advance as investors position ahead of next week’s policy decision from the Reserve Bank of Australia. Markets expect a 25 bps rate hike on May 5, which would mark a third straight increase and lift the cash rate to 4.35%. Expectations are also building that rates could climb to 4.60% or higher by year-end, as inflationary pressures remain a key concern amid the closure of the Strait of Hormuz, which has disrupted global supply chains. Australia’s annual inflation rate climbed to 4.6% in March, well above the central bank’s 2–3% target and the highest since monthly CPI reporting began in 2025. Meanwhile, the manufacturing PMI rose to 51.3 in April, surpassing both preliminary estimate of 51 and March’s reading of 49.8. Producer prices for final demand increased by 0.4% quarter-on-quarter in Q1 2026, easing from a 0.8% rise in the previous quarter and falling short of market expectations of a 0.9% gain.

The Australian dollar fell to around $0.71, but stayed near four-year highs as a sharp rise in inflation kept expectations of a rate hike next week. Headline inflation jumped to 4.6% annually in March, slightly below forecasts of 4.7%, but stayed above the Reserve Bank’s 2–3% target and marked the highest since monthly CPI data began in 2025. The annual trimmed-mean measure held at 3.3%, in line with expectations as higher fuel costs stemming from Middle East supply disruptions added to already elevated price pressures. In the absence of a major upside inflation surprise, the Aussie attracted some sellers amid cautious risk sentiment due to persistent geopolitical uncertainties. Still, markets priced in an 80% probability of a 25 bp rate hike next week. In the US and other G-7 economies, policymakers are likely to hold rates steady this week while monitoring the risk of rising energy costs fueling inflation, as the Strait of Hormuz remained effectively closed amid US-Iran tensions.