Aussie Holds Above 0.7000 as Hawkish RBA Counters USD

Key Moments

Australian Dollar Sustains Upside Momentum

The AUD/USD pair is trading with a positive tone for the fourth session in a row, maintaining levels above the 0.7000 psychological threshold during the Asian session on Wednesday. The pair is hovering close to the monthly high reached in the prior session as buyers continue to show interest.

Support for the Australian Dollar (AUD) is being reinforced by firm policy signals from the Reserve Bank of Australia (RBA), which are keeping expectations for further rate increases alive ahead of the November 3 policy meeting. On Monday, RBA Assistant Governor Christopher Kent stated that there are reasonable indications that neutral interest rates are moving higher both in Australia and globally. Earlier on Wednesday, Deputy Governor Andrew Hauser cautioned that Q3 trimmed-mean inflation may come in stronger than anticipated.

Chinese Growth and Fed Expectations Shape Currency Dynamics

Positive macroeconomic data out of China is adding another tailwind for the AUD. China’s Q3 GDP report showed the economy expanding by 4.5% year-over-year over the July-September period, which is lending additional support to the currency given Australia’s close economic ties with China.

At the same time, the US Dollar (USD) is extending a modest rebound from a nearly three-week low seen overnight. Oil-related inflation concerns are strengthening expectations that the Federal Reserve (Fed) could deliver additional tightening. Market participants are currently assigning more than a 90% probability to a Fed rate increase in December, which is helping the USD and acting as a headwind for further AUD/USD gains.

Middle East Developments Temper Aggressive Dollar Buying

Despite the firmer policy expectations for the Fed, some traders appear hesitant to ramp up long positions in the safe-haven Greenback amid renewed hopes for potential US-Iran peace discussions. Media reports indicated that Qatar and Pakistan had proposed a “middle ground” framework to the U.S. and Iran designed to address both sides’ demands.

These geopolitical developments are encouraging a degree of caution before concluding that the recent pullback in the USD from its highest level since April 2025 has fully reversed. Market attention remains focused on how the situation in the Middle East evolves and what that might mean for broader risk appetite and safe-haven flows.

Technical Picture for AUD/USD

From a technical standpoint, AUD/USD has confirmed a break above a short-term consolidation range and is now targeting a move through the 38.2% Fibonacci retracement level at 0.7024. However, additional upside could face resistance around the 200-day Simple Moving Average (SMA) situated at 0.7048.

Beyond that, the 50.0% retracement level at 0.7064 acts as another key barrier, maintaining a broadly cautious near-term outlook and signaling that the pair may find it challenging to decisively reclaim the pivot region within the wider corrective pattern.

On the downside, initial support is located at the 23.6% retracement level at 0.6974. Below that, a structural support base is identified near 0.6893, where buying interest would be expected to emerge in defense of the broader range.

Australian Dollar: Key Fundamental Drivers

Several core factors shape the performance of the Australian Dollar (AUD). One of the most important is the level of interest rates determined by the Reserve Bank of Australia (RBA). As Australia is a major exporter of commodities, especially Iron Ore, the price of this export also plays a central role. The state of the Chinese economy, Australia’s largest trading partner, is another critical component, along with domestic inflation, overall economic growth, and the country’s Trade Balance. Broader market sentiment – whether conditions are “risk-on” or “risk-off” – also matters, with risk-on environments typically favoring the AUD.

RBA Policy and Its Influence on AUD

The RBA affects the AUD primarily through its control of short-term interest rates at which Australian banks lend to one another. These benchmark rates flow through to borrowing costs across the wider economy. The RBA’s main objective is to keep inflation within a 2-3% band, and it adjusts interest rates accordingly. When Australian interest rates stand relatively high compared with those of other major central banks, the AUD tends to find support; when they are relatively low, the currency tends to be weaker.

Beyond conventional rate settings, the RBA can also implement quantitative easing or quantitative tightening to influence overall credit conditions. Quantitative easing is generally negative for the AUD, while quantitative tightening is typically supportive for the currency.

China, Iron Ore, and Trade Balance Effects

China’s economic performance has a direct influence on the AUD because of the strong trade links between the two countries. When the Chinese economy is expanding solidly, demand for Australian raw materials, goods, and services usually rises, helping to lift the AUD. Slower-than-expected Chinese growth can have the opposite impact. Surprises – positive or negative – in Chinese growth data often translate quickly into moves in AUD and its cross rates.

Iron Ore is Australia’s largest export and a significant driver of its external earnings, with China as the principal buyer. When Iron Ore prices climb, demand for AUD tends to increase, which can push the currency higher. Falling Iron Ore prices typically reduce that support. Stronger Iron Ore prices also make a positive Trade Balance more likely, which is another constructive factor for the AUD.

The Trade Balance itself – the gap between what Australia earns from exports and what it spends on imports – is an additional determinant of currency performance. A sustained surplus usually supports the AUD because it reflects net foreign demand for Australian goods and services, while a deficit tends to weigh on the currency.