Highlights:

• AUD/USD nears 0.7055, but the RBA decision could redefine the rally.
• Sticky inflation keeps another rate hike alive despite expectations for a pause.
• US labour weakness adds another catalyst—but can the Aussie sustain momentum?

Australian Dollar Approaches a Key TestThe Australian dollar is hovering near its strongest level in roughly two months against the US dollar, putting the currency in focus ahead of the Reserve Bank of Australia’s (RBA) monetary policy decision.AUD/USD recently traded around 0.7055 after holding above the 0.7050 region, supported partly by weakness in the US dollar. Australian currency above US$0.706 as investors positioned for the central bank meeting.

The rally has placed the Australian dollar near an important threshold, but its next move could depend heavily on whether policymakers reinforce expectations that interest rates may remain elevated—or potentially rise again.Why the RBA Decision Matters?Markets widely expect the RBA to keep its cash rate unchanged at 4.35%, marking a second consecutive meeting without a change. However, the policy statement, updated economic forecasts and Governor Michele Bullock’s comments could prove more influential than the headline decision.

Inflation remains central to the debate. Australia’s trimmed mean inflation accelerated to 3.6% year-on-year in June from 3.5% in May, although it remained below market expectations of 3.7%. The RBA has already raised rates three times in 2026, making investors increasingly sensitive to signs that further tightening may be necessary.

Markets are pricing roughly a 50% probability of another 25-basis-point increase by year-end, highlighting persistent uncertainty over the policy path.US Dollar Weakness Supports the Australian DollarThe Australian dollar’s upward momentum is being influenced by more than just domestic developments. A softer US dollar has provided a significant tailwind after disappointing US employment figures weakened expectations for further Federal Reserve tightening.

US nonfarm payrolls unexpectedly declined by 23,000 in July, compared with expectations for an 80,000 increase, while previous months were revised lower. The probability of a September Fed rate hike subsequently fell to around 44% from 67% a week earlier.

Firmer commodity prices and improved global risk sentiment have also supported the Australian currency.Outlook: Can AUD/USD Extend the Rally?The RBA’s communication now represents the immediate catalyst. A hawkish stance that keeps further tightening firmly on the table could strengthen the Australian dollar and encourage AUD/USD to challenge the 0.7100 area and potentially higher levels.

Conversely, softer inflation guidance or reduced concern about price pressures could trigger profit-taking after the recent advance. Beyond the RBA, US economic data, Federal Reserve expectations, commodity prices and global risk sentiment will remain critical.

The Australian dollar has momentum, but sustaining its two-month-high rally may require continued support from both Australian monetary policy and a softer US dollar.Note- All data presented is based on information available at the time of writing.Disclaimer for Kapitales ResearchThe materials provided by Kapitales Research, including articles, news, data, reports, opinions, images, charts, and videos ("Content"), are intended for personal, non-commercial use only. The primary goal of this Content is to educate and inform readers. This Content is not meant to offer financial advice, nor does it include any recommendation or opinion that should be relied upon for making financial decisions. Certain Content on this platform may be sponsored or unsponsored, but it does not serve as a solicitation or endorsement to buy, sell, or hold any securities, nor does it encourage any specific investment activities. Kapitales Research is not authorized to provide investment advice, and we strongly advise users to seek guidance from a qualified financial professional, such as a financial advisor or stockbroker, before making any investment choices. Kapitales Research disclaims all liability for any direct, indirect, incidental, or consequential damages arising from the use of the Content, which is provided without any warranties. The opinions expressed by contributors or guests are their own and do not necessarily reflect the views of Kapitales Research. Media such as images or music used on this platform are either owned by Kapitales Research, sourced through paid subscriptions, or believed to be in the public domain. We have made reasonable efforts to credit sources where appropriate. Kapitales Research does not claim ownership of any third-party media unless explicitly stated otherwise. 

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