AUDUSD Holds Above 0.705 as RBA Keeps Hawkish Stance

Key Points

• AUDUSD held above the 0.7050 area as markets assessed the Reserve Bank of Australia’s cautious approach to inflation and monetary policy.
• The RBA kept its cash rate unchanged at 4.35%, while policymakers indicated that financial conditions remain restrictive.
• RBA Assistant Governor Christopher Kent said previous rate increases were weighing on consumer spending and broader economic activity.
• Markets continue to monitor the possibility of further rate increases as inflation risks remain a key concern.
• Attention now turns to Governor Michele Bullock’s parliamentary testimony for further guidance on the policy outlook.

The Australian dollar held above the 0.7050 area, remaining near multi-week highs as investors assessed the Reserve Bank of Australia’s latest comments on inflation and interest-rate expectations.

The currency has been supported by the RBA’s cautious policy outlook, with markets continuing to monitor the possibility of further rate increases if inflation remains persistent.

The RBA maintained its cash rate at 4.35%, following a cumulative 75 basis points of increases since February.

While policymakers kept rates unchanged, they indicated that future decisions would continue to depend on inflation developments.

Why Traders Are Watching AUDUSD

The main focus for AUDUSD remains the outlook for Australian interest rates and whether the RBA’s policy stance can continue supporting the currency.

RBA Assistant Governor Christopher Kent said previous rate increases were working as intended, with tighter financial conditions weighing on consumer spending and broader economic activity.

He also noted that softer housing conditions, slower credit growth and weaker new home lending activity suggest that higher borrowing costs are continuing to influence household behaviour.

However, policymakers remain cautious about inflation. Governor Michele Bullock has indicated that the central bank remains prepared to raise rates again if inflation does not continue to moderate.

This has kept markets focused on the possibility of additional tightening, with traders pricing in the potential for the cash rate to reach 4.60% by December.

At the same time, uncertainty remains over the longer-term rate outlook, making upcoming economic data and central bank communication important drivers for AUDUSD.

Key Trading Levels

AUDUSD is trading around the 0.7050 area after holding near recent highs. A move above 0.7065 could strengthen short-term momentum and bring the 0.7100 resistance area into focus.

On the downside, a break below 0.7020 could signal a deeper pullback towards the 0.7000 support zone.

Bullish and Bearish Setups

The bullish scenario depends on AUDUSD maintaining support above 0.7050 and breaking through the 0.7065 to 0.7100 resistance zone. Continued expectations for a restrictive RBA policy stance could support the Australian dollar.

The bearish scenario becomes more relevant if AUDUSD breaks below 0.7020, which could indicate weakening momentum and increase the likelihood of a move towards 0.7000.

Disclaimer

The price levels and market scenarios above reflect the author’s view at the time of writing and do not represent financial advice or an official recommendation from VT Markets. Traders should conduct their own analysis and manage risk carefully.

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What to Watch Next

AUDUSD’s next direction will depend on how markets interpret Australian inflation trends and the outlook for Reserve Bank policy.

Key factors include:

• RBA Policy Signals: Whether policymakers maintain a hawkish stance or adjust expectations for future rate decisions.
• Michele Bullock’s Testimony: Further guidance on inflation risks and monetary policy.
• Australian Economic Data: Updates on inflation, employment and consumer activity.
• US Dollar Movement: Changes in Federal Reserve expectations that could influence AUDUSD.
• Risk Sentiment: Broader market conditions affecting demand for the Australian dollar.

From a technical perspective, traders are watching whether AUDUSD can break above 0.7065, while 0.7020 remains the key short-term support level.

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