The Reserve Bank of Australia was inclined to leave the cash rate unchanged in March, citing uncertainty stemming from the conflict in the Middle East. However, it decided to increase it. Nevertheless, the rate hike did not help the AUD/USD pair. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
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The RBA raised the cash rate to 4.1%.
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Markets are skeptical about the continued cycle.
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The Australian dollar is holding steady thanks to its yield.
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Short and long trades on the AUD/USD pair can be considered at 0.6935 and 0.7025, respectively.
Weekly Fundamental Forecast for Australian Dollar
The Australian dollar has outperformed most of its peers since the start of the armed conflict in the Middle East. However, investors are gradually beginning to doubt that the AUD/USD’s drivers will remain as effective. Inflation is rising more slowly than expected, and the labor market is showing signs of weakness. Will this prompt the Reserve Bank to pause in May?
Performance of G10 Currencies Since Middle East Conflict Began
Source: Bloomberg.
In early 2026, the aussie performed strongly due to diverging monetary policies. Most central banks planned to keep rates steady or even cut them. The RBA, however, was focused on monetary tightening. It raised the cash rate twice, in February and March, to 4.1%. However, at the last meeting, officials divided their votes. Five supported a rate hike, while four opposed it. This split caused investors to doubt whether the cycle would continue in May. As a result, AUD/USD quotes retreated.
The RBA considered postponing the rate hike due to the uncertainty surrounding the conflict in the Middle East. However, with the risk of inflation accelerating to 5% by year-end, the regulator concluded that it could not keep the cash rate at its current level.
Investors’ doubts about the continuation of the monetary tightening cycle have grown after Australia’s unemployment rate rose to 4.3%, above the forecast of 4.1%, while the RBA’s preferred inflation gauge came in at 3.3% for February, slightly below the expected 3.4%. The reported employment gain of 48,900 was driven primarily by part-time positions.
With the labor market showing signs of weakness and inflation slowing, should the Reserve Bank continue raising rates? Futures markets have lowered the probability of a May cash rate hike from 60% to 54%, prompting the AUD/USD pair to decline further.
Global Bond Yields
Source: Bloomberg.
The Australian dollar’s gains were driven by faster growth in domestic bond yields compared to their foreign counterparts. Without the RBA’s plans to continue its monetary tightening cycle as a key advantage, the AUD/USD will face headwinds.
Nevertheless, a de-escalation of the Middle East conflict could support the Australian dollar by boosting global risk appetite, encouraging carry traders to become more active. At the same time, reduced geopolitical uncertainty may prompt the Reserve Bank of Australia to maintain its firm stance on inflation, potentially leading to another rate hike.
Weekly AUDUSD Trading Plan
The news about potential US–Iran negotiations introduces uncertainty and creates a two-way risk environment for the AUD/USD pair. In this connection, long positions can be considered if the price breaks through the resistance level of 0.7025. At the same time, if the pair slides below the support of 0.6935, short trades can be opened.
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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