RBA Deputy Governor Andrew Hauser said inflation is too high and that the bank will take whatever steps are needed to return it to its target band. He said some price rises may ease, while some appear linked to supply constraints.
At the time of writing, AUD/USD was near 0.7095, up 0.29% on the day. The RBA aims to keep inflation within 2–3% by adjusting interest rates and can also use quantitative easing or tightening to change credit conditions.
Australian Dollar Key Drivers
The Australian Dollar is influenced by RBA interest rate settings and by commodity prices, especially iron ore. Iron ore is Australia’s largest export, worth $118 billion a year based on 2021 data, with China the main destination.
China is Australia’s largest trading partner, so Chinese economic growth can affect demand for Australian exports and the AUD. The trade balance also matters, as stronger export earnings than import costs tend to support the currency.
The Reserve Bank’s message is that inflation is too high, and they will do what is necessary to fix it. We saw inflation remain stubbornly above the target band throughout the last quarter of 2025, hitting 3.9%. This suggests that the central bank will keep interest rates higher for longer, or even consider another hike, which is typically positive for the currency.
This hawkish tone is supported by the price of our biggest export, iron ore. Prices have shown resilience, holding above $125 a tonne in recent weeks on the Singapore Exchange. This strength contributes to a positive trade balance and provides fundamental support for the Australian dollar’s value.
China Demand And Trading Approach
However, we need to keep a close eye on demand from China, our largest trading partner. While China’s economy grew by a reported 5.1% in 2025, recent manufacturing PMI data has hovered around the 50-point mark, indicating that its recovery is not yet on solid footing. Any sign of a slowdown there could be a headwind for the Aussie dollar.
Given the RBA’s clear priority to fight inflation, we should position for potential Australian dollar strength in the coming weeks. With the AUD/USD already near 0.7095, buying call options could be a prudent way to capture further upside while limiting downside risk from any negative Chinese data surprises. Dips in the currency’s value should be viewed as potential buying opportunities, as the domestic policy direction appears set.
