Hawkish RBA Bets Push Aussie Above Key Resistance

The Australian dollar extended gains against every major peer as traders repriced the Reserve Bank of Australia’s rate path. Markets now assign a growing probability that the RBA will hold its cash rate at 4.35% well into 2025, and a minority of positions are betting on an additional hike. That shift has widened the yield pickup on Australian assets just as other central banks move toward easing.

Rate Differentials Drive the Aussie’s Rally

The simple read is that the Australian dollar is rising because the RBA sounds hawkish. The better read is that the move is a mechanical response to rate differentials. When traders price a more restrictive RBA, Australian short-term yields climb relative to those in the US, eurozone, and Japan. That gap pulls in capital seeking higher carry, and the currency adjusts higher to reflect the flow.

The transmission path is direct. A hawkish RBA lifts the 3-year Australian government bond yield, the benchmark for rate expectations. That yield has climbed faster than equivalents in other developed markets. The spread between Australian and US 2-year yields has widened, and the AUD/USD pair has tracked that spread almost tick for tick. The same dynamic is visible in AUD/JPY, where the Bank of Japan’s glacial tightening keeps the yen on the back foot, and in EUR/AUD, where the European Central Bank is already cutting.

This is not a risk-on rally dressed up as a policy story. Commodity prices are not the driver. Iron ore has been rangebound, and global equity sentiment is mixed. The Aussie’s outperformance is a pure rates trade, and that makes it vulnerable to any data that challenges the hawkish narrative.

AUD/USD Breaks Resistance as Shorts Unwind

The AUD/USD pair has pushed through levels that had capped it for weeks. The break is attracting momentum traders and forcing short-covering. Positioning data had shown a sizable short base in the Aussie, and the speed of the move suggests that unwind is still underway.

The carry trade is back in focus. With the RBA holding at 4.35% and the Federal Reserve expected to deliver its first cut within months, the yield pickup on a long AUD/USD position is material. That pickup is even larger against the yen and the Swiss franc, where policy rates remain near zero. Traders who had been using the Aussie as a funding currency for emerging-market longs are now flipping the book and going long Aussie outright.

The risk is that the hawkish pricing has overshot. The RBA has kept the cash rate steady since November 2023, and Governor Michele Bullock has stressed that the board is data-dependent. If the next round of Australian employment or inflation data prints soft, the rate differential that is driving the rally could compress in a single session. The currency would then give back gains as fast as it accumulated them.

RBA Decision and Data: The Next Catalyst

The next concrete marker is the RBA policy decision. Markets have priced a near-zero chance of a cut and a small probability of a hike. That asymmetry means the Aussie is more sensitive to a dovish surprise than to a confirmation of the hawkish stance. A statement that merely repeats the board’s willingness to act if needed would likely be treated as a non-event. A shift in language toward concern about the labor market or a downgrade to inflation forecasts would hit the currency hard.

For traders, the setup is clear. The Australian dollar is riding a wave of rate differential optimism. The wave will hold as long as the data supports it. The next Australian jobs report and the quarterly CPI print are the two releases that will either validate the hawkish bets or trigger a sharp reversal. Until then, the path of least resistance is higher, though the air is thinning.

EUR/USD profile and German 30-Year Yield Rises to 3.62%, Reshaping EUR/USD Rate Differential show how rate differentials are reshaping major pairs. The Aussie’s move is part of the same global repricing.