AUD Steady as Traders Expect More RBA Rate Hikes

Key Moments

RBA Policy Divergence Drives AUD Resilience

Philip Wee of DBS Group Research reports that the Australian Dollar has been a standout performer within the G10 complex, even as markets navigate tensions stemming from the Iran conflict. He links this resilience primarily to the Reserve Bank of Australia’s policy stance, which he characterizes as distinctly more hawkish compared to other major central banks.

According to Wee, the Australian central bank’s approach has set it apart from its peers and has become a key factor supporting the currency, helping it withstand broader risk-off moves in global markets.

Market Repricing Following RBA Communication

Wee notes that the shift in expectations for RBA policy followed remarks from RBA Deputy Governor Andrew Hauser, who reiterated the central bank’s emphasis on tackling inflation within its dual mandate. Hauser highlighted that inflation pressures were already running above the RBA’s February forecasts before the additional impact from the Iran-related energy shock.

In response, markets sharply adjusted their outlook for the upcoming policy decision.

FX Market Reaction in AUD/USD

Wee points out that this repricing of the RBA path has been reflected in the performance of AUD/USD. With a 66% probability now assigned to a back-to-back 25 basis point hike that would bring the policy rate to 4.10% on March 17, the currency pair has rebounded to reclaim the 0.7118 level seen before Operation Epic Fury.

AUD/USD advanced further to post a Wednesday intraday high of 0.7187. Wee interprets this movement as evidence that the RBA’s focus on preventing secondary inflation effects from higher energy prices is, at present, exerting a stronger influence on the Australian Dollar than the general risk-off tone affecting broader markets.

DBS Assessment of AUD Positioning

In summarizing the situation, Wee underscores that:

“AUD has emerged as a primary outlier in the G10 space, demonstrating significant resilience against the volatility of the ongoing Iran conflict.”

“This outperformance is driven by stark monetary policy divergence, as the Reserve Bank of Australia maintains a distinct hawkish stance relative to its peers.”

“Following RBA Deputy Governor Andrew Hauser’s recent affirmation that inflation remains the priority of the dual mandate, noting that price pressures were already exceeding February projections prior to the Iran-related energy shock, markets have aggressively repriced the March 17 policy path.”

“With a 66% probability now factored in for a back-to-back 25 bps hike to 4.10%, AUD/USD reclaimed the 0.7118 level held prior to Operation Epic Fury, reaching a Wednesday high of 0.7187.”

“This price action suggested that the RBA’s commitment to curbing secondary inflationary effects from elevated energy costs is currently outweighing broader ‘risk-off’ sentiment.”