AUD/USD rises above 0.7000 due to hawkish tone surrounding RBA outlook

AUD/USD rises as easing AI disruption fears lift investor confidence.
The AUD gains support after hawkish remarks from RBA Governor Bullock on tighter policy needs.
Traders will closely watch the delayed US January employment report on Wednesday.

Akhtar Faruqui FXStreet

AUD/USD extends its gains for the second successive session, trading around 0.7020 during the Asian hours on Monday. The pair appreciates as the commodity-linked Australian Dollar (AUD), often seen as a liquid barometer of global risk sentiment, gains ground amid easing concerns over AI-driven disruption and revived investor confidence.

The AUD also receives support after hawkish comments from the Reserve Bank of Australia (RBA) Governor Michele Bullock, saying that the board lifted the Official Cash Rate (OCR) because the economy is more capacity-constrained than previously judged, meaning policy needed to be tighter. Bullock added that the RBA needs to dampen demand growth unless supply capacity can expand faster.

Australia’s Household spending fell 0.4% month-over-month (MoM) in December 2025, reversing a 1.0% increase in the previous month and missing market expectations for a 0.2% rise. This marked the first monthly contraction since March 2024, reflecting the impact of persistent cost pressures and elevated interest rates. Spending grew 5.0% year-over-year (YoY), the slowest pace in four months, easing from a 6.0% gain in November.

The risk-sensitive AUD/USD pair gained ground after Bloomberg reported that Iran’s President Masoud Pezeshkian called Friday’s nuclear talks with the US “a step forward,” while rejecting intimidation. Foreign Minister Abbas Araghchi said further negotiations depend on consultations in Washington and Tehran and require no threats. Meanwhile, US President Donald Trump said another meeting is planned this week, warning of “very steep” consequences if no deal is reached.

Traders will closely watch the delayed release of the US January employment report on Wednesday. The US economy is expected to add 70,000 jobs, while the Unemployment Rate is forecast to hold steady at 4.4%.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

AUD/USD bounces off multi-month low, nears 0.6900

AUD/USD edges higher toward 0.6900 in the Asian session on Wednesday, recovering some of the previous day’s losses to its lowest level since March as the US Dollar stalls the hot US CPI-inspired rally amid hopes of a US-Iran peace deal. Meanwhile, hawkish comments from FOMC members have almost confirmed another December rate hike, which favors USD bulls and should cap the Aussie.

USD/JPY remains capped below 159.00 amid looming intervention risks

USD/JPY struggles to build on the previous day’s strong gains to a near one-month top as intervention risk supports the Japanese Yen while hopes of a US-Iran peace deal cap the safe-haven US Dollar. That keeps the pair's upside limited below 159.00, for now.

Gold sticks to gains near $4,050 amid steeper Fed rate hike bets

Gold clings to recovery gains near $4,050 in the European session on Wednesday. However, upside seems limited amid sustained US Dollar demand. Tuesday's hot US inflation figures fuel expectations of a more aggressive policy tightening by the US Federal Reserve (Fed). This helps the Greenback preserve recent strong gains, despite hopes for US-Iran diplomacy.

Bitcoin at risk of sharp moves as leverage builds in derivatives markets

Bitcoin remains in a capped tone, trading around $73,800 after slipping to a low of $72,727 following the previous day’s hot US inflation figures. Institutional demand continues to weaken, with BTC spot Exchange Traded Funds recording a $95 million outflow on Tuesday, marking the fourth straight day of withdrawals. Traders should be cautious as a K33 Research report highlights that BTC is at risk of sharp moves as leverage builds in derivatives markets.

Hot CPI helps cement December Fed hike as Nvidia slumps

October CPI inflation landed yesterday and beat expectations across the board. Note that we only received the MM figures because of last year’s government shutdown. Headline MM came in at 0.4%, beating the 0.3% forecast, though below September's 0.6%. Core MM also came in at 0.3%, slightly higher than the 0.2% estimate and matching the prior month’s reading.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.