Australia has chosen its own path. It did not aggressively raise rates to prevent a recession. However, the RBA is now forced to tighten monetary policy. As a result, speculators are buying the AUD/USD pair. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The RBA will continue to raise rates.
- Speculators are purchasing the aussie.
- Australia is concerned about the new tariffs.
- Long positions on the AUD/USD pair can be opened on a breakout of 0.71.
Weekly Fundamental Forecast for Australian Dollar
Everything comes at a price. The Reserve Bank of Australia was once praised for its “slow and steady wins the race” approach. It slowly increased interest rates to combat post-pandemic inflation, believing that most of the rise in consumer prices was temporary. As a result, the RBA managed to keep the economy afloat. However, it is now forced to hike rates to cope with elevated CPI. Against this backdrop, the AUD/USD pair is growing, but new momentum is needed to continue the rally.
Unlike Australia, New Zealand has been more aggressive. It raised its key rate to 5.5%, triggering a recession. The RBNZ then cut borrowing costs by 325 basis points over 15 months until November. It is now enjoying inflation-free economic growth. Wellington does not have the same problems as Canberra.
Interest Rates in Australia and New Zealand
Source: Bloomberg.
However, while the Reserve Bank of Australia is struggling to prevent high prices from becoming entrenched in the economy, speculators are changing their views on the aussie. The cycle of monetary tightening that began in February is the key to the AUD/USD pair’s bullish momentum. Since the beginning of the year, the pair has grown by 6%. The Australian dollar is the leader not only among the G10 currencies, but also among the thirty most liquid currencies tracked by Bloomberg.
In December, hedge funds were bullish about the aussie. In February, asset managers joined them. As a result, speculators became net buyers of the Australian dollar for the first time in almost two years. Previously, this had been a short-lived trend. Now, it is more likely to be a long-term tendency. If so, the AUD/USD pair will likely continue its upward trend.
Speculative Positions on Australian Dollar
Source: Bloomberg.
At the same time, the currency pair may face some severe headwinds. For example, the reluctance of US stock indices to grow, which reduces global risk appetite and weighs on high-yield currencies such as the aussie. According to Bank of America, only 26 of every 100 dollars invested in the global stock market come from the US. The figure is the lowest since 2020 and far from the 92 recorded in 2022.
The second obstacle for AUD/USD quotes could be the US administration’s introduction of 15% tariffs in response to the Supreme Court’s ruling to cancel previous duties. For Australia, they were set at 10%. Finally, growing trade uncertainty, including over the return of previously paid fees, could lead to a prolonged pause by the Fed, which would strengthen the greenback.
Weekly AUDUSD Trading Plan
Despite numerous hardships, the AUD/USD pair’s upward trend remains intact. If bulls push the price to 0.71 in the near future, it will create an opportunity to buy the aussie. Otherwise, long positions can be opened on a pullback after a failed test.
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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