The strong economy and the RBA’s intention to raise the key rate are facing serious headwinds from risk aversion and rising oil prices. Notably, the latter is unfavorable for global GDP. Let’s discuss this topic and make a trading plan for the AUD/USD pair.
The article covers the following subjects:
Major Takeaways
- Australia’s economy is growing faster than expected.
- The RBA is fueling rumors of a rate hike.
- The S&P 500 index may rise 10% by the end of 2026.
- Long trades can be considered if the AUD/USD pair breaks through 0.705 and 0.707.
Weekly Fundamental Forecast for Australian Dollar
It might seem that the conflict in the Middle East has become a fatal blow to the Australian dollar. Risk appetite has declined sharply, as evidenced by falling global stock indices. The Chinese yuan has weakened due to soaring oil prices, and demand for the greenback as a safe-haven asset is skyrocketing. The headwinds for the AUD/USD pair are so strong that even strong Australian GDP data cannot help bulls. However, they are not giving up.
In the fourth quarter, Australia’s economy expanded by 0.8% q/q. Meanwhile, third-quarter data was revised upward. As a result, GDP grew by 2.6% in 2025, showcasing the best performance in three years and exceeding the forecast of 2.3%.
Australian GDP Growth and RBA Cash Rate
Source: Bloomberg.
However, strong statistics have reduced the likelihood of a March rate increase from 36% to 20%. Investors believe that GDP data is now a thing of the past. It has already been factored into AUD/USD quotes.
Nevertheless, the central bank’s concerns about inflation amid a strong economy and a stabilizing labor market are understandable. RBA Governor Michele Bullock noted that when prices rise by 3.8%, the RBA will actively consider whether to move faster in the tightening cycle. She discourages anyone from thinking that the cash rate must be raised every quarter.
The RBA’s hawkish rhetoric is supporting the AUD/USD pair, but the headwinds are excessively strong. The longer the armed conflict in the Middle East continues, the higher the risk that oil will continue to rally and US stock indices will undergo a correction. The same could happen to the Australian dollar, which has had a successful start.
Nevertheless, Wall Street analysts continue to forecast a 10% rally in the S&P 500 index by the end of the year, thanks to the strength of the US economy and solid corporate earnings. The medium-term outlooks for the broad stock index and the AUD/USD pair remain bullish.
S&P 500 Performance and Concensus Forecast
Source: Bloomberg.
The Australian dollar, which started 2026 on a high note, has merely taken a step back, but the upward trend remains intact. The conflict in the Middle East threatens the entire global economy, and Australia will also be affected. Therefore, the sooner the confrontation between the US and Israel on the one side and Iran on the other ends, the better it will be for the aussie.
Weekly AUDUSD Trading Plan
Against this backdrop, long positions on the AUD/USD pair formed on a pullback to 0.695 appear to be a sound strategy. These positions can be increased, or new long positions can be opened on a breakout of resistance levels of 0.705 and 0.707. A rebound from these levels will allow us to stick to our previous strategy of buying the Australian dollar on corrections.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of AUDUSD in real time mode
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