Australian Dollar advances as surging energy prices increased RBA rate hike bets

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AUD/USD extends its gains for the second consecutive day, trading around 0.7160 during the early European hours on Monday.

AUD/USD rises as higher energy prices boost RBA hike expectations, supporting the Australian Dollar.
Traders await Australia’s CPI, with annual inflation seen at 4.7%, well above the RBA’s 2–3% target range.
US Dollar may strengthen as Israel-Hezbollah attacks intensify despite a US-brokered ceasefire extension under strain.

AUD/USD extends its gains for the second consecutive day, trading around 0.7160 during the early European hours on Monday. The pair advances as the Australian Dollar (AUD) receives support, which could be attributed to surging energy prices and strengthening expectations of the Reserve Bank of Australia’s (RBA) rate hikes.

Traders are awaiting Australia’s March Consumer Price Index (CPI) report due on Wednesday, with headline annual inflation expected to rise 4.7%, well above the Reserve Bank of Australia’s 2–3% target range. Any upside surprise could reinforce expectations of a 25-basis-point rate hike at the central bank’s May 5 meeting. As of April 24, the ASX 30 Day Interbank Cash Rate Futures May 2026 contract was trading at 95.745, implying a 74% probability of a rate increase to 4.35% at the upcoming RBA Board meeting.

The AUD/USD pair advanced as the US Dollar (USD) extended its decline despite rising safe-haven demand. However, downside pressure on the Greenback may be limited as the ceasefire comes under strain, with Israel and Hezbollah stepping up attacks despite a US-brokered extension aimed at halting fighting for three weeks.

US President Donald Trump canceled a planned delegation to Pakistan for potential direct talks with Iran, instructing Jared Kushner and Steve Witkoff to skip the trip. Trump said Iran “offered a lot, but not enough,” while Iranian President Masoud Pezeshkian stated that Tehran would not engage in “imposed negotiations under threats or blockade.”

Bloomberg reported on Monday that Iran presented the US with a new proposal to reopen the Strait of Hormuz and end the conflict, including delaying nuclear negotiations. The proposal also calls for extending the ceasefire to allow both sides to work toward a lasting resolution.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.