The Australian dollar faces a pivotal week as traders weigh the Reserve Bank of Australia’s rate decision alongside rising geopolitical risks and surging oil prices. While the Aussie has held up relatively well despite risk-off flows, technical signals and positioning data suggest momentum may be turning. With several major central banks also meeting this week, volatility across FX markets could rise as traders reassess the outlook for interest rates and global growth.
View related analysis:
- Gold Slips as Crude Oil Surges on Middle East Tensions
- US Dollar and USD/JPY Rallies Stumble Amid Iran War De-Escalation Hopes
- FX Futures Positioning: USD, EUR, GBP, JPY, AUD | COT report
- Australian Dollar Outlook: Options Price Downside Risk Yet AUD/USD Holds Firm
Australian Dollar Performance
- The US dollar remained supreme in the face of geopolitical uncertainty last week and was the only major currency the Australian dollar did not rise against
- AUD/USD fell 0.7%, closing below 70c for the first time in six weeks, with all of the week’s losses arriving on Thursday and Friday
- AUD/NZD rose to a fresh 13-year high, closing the week just shy of 1.21
- AUD/CAD formed a volatile shooting star week and marked another failed break above 0.97
- AUD/JPY formed a shooting star week near 114, warning of potential near-term weakness within its otherwise strong trend
- EUR/AUD fell for a twelfth consecutive week, its most bearish run on record
- GBP/AUD formed a bullish outside week, hinting at potential weakness in the broader bearish trend ahead of this week’s RBA and BOE meetings
Source: LSEG
Australia This Week: Economic Data and Events for AUD/USD Traders
RBA Decision Looms as Oil Shock Complicates Rate Outlook
The Reserve Bank of Australia meets on Tuesday with markets debating whether policymakers will follow February’s hawkish pivot with another rate hike. The balance of risks suggests a hike is more likely — though not guaranteed.
Inflation remains above the RBA’s target band, underlying measures are proving sticky, and the labour market continues to show resilience. Growth also surprised slightly to the upside in late 2025, reinforcing the view that demand has not slowed enough to comfortably bring inflation back to target.
However, the wildcard is the Middle East conflict and its impact on global energy prices. The sharp surge in crude oil raises the risk of renewed inflation pressure through higher fuel and transport costs. At the same time, an energy shock can act as a tax on growth, potentially weakening consumer demand.
This leaves the RBA facing a delicate balance. Policymakers may prefer to tighten sooner if they believe higher oil prices could reignite inflation expectations. But if the Board views the shock as temporary, it may opt to wait for greater clarity before moving again.
For now, a 25bp hike seems likely, though I doubt the RBA will want to commit top another hike at this meeting. And that could help prompt a deeper pullback on the Australian dollar.
Central Bank Meeting Galore, Though Holds Seem Likely
While several major central banks meet this week, most are expected to leave policy unchanged. That said, the meetings remain worth watching in case one of them surprises.
As mentioned, the RBA is the main exception and is expected to hike on Tuesday, while the SNB and ECB are both likely to hold on Wednesday. However, the SNB may reiterate that it remains willing to intervene in currency markets if necessary.
The BOC appears to have ended its easing cycle, although it may still be too soon for policymakers to signal any shift towards tightening. The Bank of Japan is also expected to stand pat on Thursday, though a surprise hike could trigger volatility.
If the BOE were to surprise, it would more likely be with a cut — but for now, a hold remains the most probable outcome.
A Fed hold is practically a given, though traders will keep a close eye on updated SEP (staff economic projections). But the FOMC dot plot is likely to be less dovish, if there is any change at all.
Australia This Week: Economic Data and Events for AUD/USD Traders
AUD/USD Futures Positioning | COT Report
Net-long exposure finally tapered off last week on AUD/USD futures, primarily due to a closure of longs. Large speculators reduced longs by 15.1k contracts (-11%), seeing net-long exposure fall for the first time since flipping to bullish exposure six weeks ago.
Asset managers only trimmed longs by 3.1k contracts (-3.5%), although they also increased shorts by 2.4k contracts (+4%). While this hardly paints a compellingly bearish picture for the Australian dollar, it does reinforce growing calls for a pullback.
The Aussie has remained resilient despite the risk-off flows of the past two weeks, supported by rising commodities and expectations of a hawkish RBA, while risk appetite remains pressured by developments in the Middle East.
Source: CFTC, CME, LSEG
AUD/USD Correlations
The Aussie’s correlation with the Chinese yuan and copper has returned over the past two weeks, likely as an indirect consequence of Middle East tensions. While AUD/USD has also maintained a strong inverse correlation with crude oil, it could be argued the pair has held up relatively well despite the surge in oil prices.
With the US dollar becoming the safe-haven currency of choice for traders amid the Iran war, AUD/USD has retained its strong inverse correlation with the US dollar index overall.
Chart prepared by Matt Simpson - Source: LSEG
AUD/USD Technical Analysis: Australian Dollar vs US Dollar
Implied volatility has risen to its highest level since April, yet the Aussie has remained above 69c regardless. Still, hints of a reversal have continued to build. A shooting star week saw AUD/USD close below 70c following a false break of its 2023 high, marking its second consecutive week lower.
Note that bearish momentum has noticeably picked up over the past two days, which to me suggests a top may now be in place. Risk reversals are also showing a renewed preference for puts over calls, and options traders have been heavily skewed towards downside protection for several weeks despite the Aussie’s ability to remain stubbornly high.
With price action now hinting at a top and the potential for the RBA to deliver a lukewarm hike, AUD/USD could come under pressure this week. The recent pickup in bearish momentum suggests traders may already be positioning for a pullback — particularly if oil prices remain elevated amid geopolitically driven headlines from the Middle East.
Source: ICE, TradingView
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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