Aussie Strengthens After RBA "Tightens" Policy
The Australian dollar strengthened on Tuesday (February 3) after the Reserve Bank of Australia raised its benchmark interest rate (cash rate) by 25 bps to 3.85% at its first policy meeting in 2026. This increase marked a significant change in direction: the RBA assessed that price pressures would solidify again in the second half of 2025 and that inflation risked remaining above target for longer, necessitating a further "tightening" of policy.
The market reaction was immediately evident in the currency. AUD/USD is currently trading around 0.703 (up about 1% on the day), higher than the 0.7008 level mentioned in the previous report. The AUD's strength was driven by a combination of a "rate advantage" (rising Australian yields) and expectations that the RBA would still be open to further action if inflation data does not improve quickly.
However, the room for AUD appreciation will still be influenced by two factors: (1) the strength of the RBA's signal regarding the next hike (whether it is "data-dependent" or pointing to a tightening path), and (2) the direction of the US dollar—because if the USD strengthens sharply again, the AUD usually also feels restrained even if domestic conditions are positive.
Source: Newsmaker.id
