RBA Hike Drives AUD Above 0.70; US GDP Weakens USD

RBA Hike Drives AUD Above 0.70; US GDP Weakens USD

This week brought clear, event-driven moves in the AUD/USD cross. A surprise policy pivot from the Reserve Bank of Australia (RBA) and a softer U.S. growth print were the two dominant forces shifting exchange-rate dynamics. Traders reacted quickly: the Aussie jumped through the 0.70 level after the RBA’s February decision, while a weak U.S. Q4 GDP print later in the month trimmed the dollar’s advance and reinforced AUD strength.

Key Drivers Behind the Move

RBA’s February Rate Increase

On February 3, 2026 the RBA raised the cash rate by 25 basis points to 3.85%, its first increase since 2023. That decision surprised a number of market participants and signaled that the central bank is prepared to act to bring inflation back toward target. With Australian core inflation still running above comfort levels—around the mid-3% range on a year-over-year basis—the RBA’s tone and the hike itself gave the AUD a substantial lift.

Immediate market reaction was decisive: AUD/USD rose roughly three-quarters of a percent following the statement, reclaiming and briefly breaking above the 0.70 threshold. For currency traders, an unexpected tightening path from a major central bank is a clear, tangible reason to re-price forward rates and swap curves, and the AUD benefited from that re-pricing.

Weaker U.S. Growth Dampens Dollar Support

Later in the month, U.S. Q4 GDP was reported at an annualized 1.4%—well below consensus near 3.0%. That weaker growth number prompted investors to reassess the near-term outlook for the U.S. Federal Reserve and reduced some of the dollar’s recent momentum. The AUD/USD pair slipped to about 0.7050 after the GDP release, reflecting the tug-of-war between a firmer AUD and an intermittently resilient USD.

It’s important to note that while growth softened, U.S. inflation measures have shown periodic stickiness. That nuance keeps the Fed hiking narrative in play, but the immediate market reaction favored the Aussie given the combination of hawkish RBA signals and the growth surprise out of the U.S.

Broader Context and Real-World Impact

Trade-Weighted Strength and Commodities

The Australian dollar’s gains aren’t just bilateral against the U.S. dollar. On a trade-weighted basis, the AUD has risen materially since late 2025—supported by firmer commodity prices and Australia’s higher interest-rate differential. Central-bank divergence (RBA tightening versus a more cautious Fed path) has been a primary driver.

Household and Business Effects

Currency moves have tangible consequences. For example, Australians receiving USD-denominated income have seen conversion values shift meaningfully with the dollar’s ebb and flow. Small businesses and exporters similarly feel both the ups and downs, whether in revenue converted from USD receipts or in the cost competitiveness of traded goods.

What Traders and Businesses Should Watch Next

Key data releases and central-bank communication will continue to dictate short-term AUD/USD swings. Market participants should monitor:

• RBA forward guidance and any comments that suggest additional rate hikes—markets have been pricing in the possibility of further tightening.
• U.S. inflation indicators and Fed commentary that could reassert dollar strength if inflation surprises to the upside.
• Commodity price trends and the Australian trade data that influence the AUD’s trade-weighted performance.

From a tactical standpoint, the pair is trading with clearer directional cues than it did a month ago: central-bank divergence is the dominant theme, with data releases creating short-term volatility spikes.

Conclusion

The combination of an unexpected RBA rate hike and a softer-than-expected U.S. Q4 GDP print moved AUD/USD materially over the past week. The RBA’s 25-basis-point increase to 3.85% and ongoing signs of sticky Australian inflation provided the primary impetus for AUD strength, while weaker U.S. growth trimmed dollar support. Going forward, fresh central-bank signals and macro data—especially U.S. inflation and RBA commentary—will determine whether AUD can extend its recent gains or if the dollar reasserts dominance.

Active participants should align hedges and trading plans to the heightened event risk: persistent RBA tightening would favor a stronger AUD, while a surprise rebound in U.S. inflation or a hawkish Fed would swing momentum back toward the dollar.