Australian Dollar and RBA Policy💱 Forex•AUD/USD

Australian Dollar Surges on Hot Inflation, RBA Rate Hike Bets Rise

February 25, 2026, 08:29 PM167 words9 sourcesAI-Generated · Reviewed by editorial team
AUD/USD
Australian Dollar Surges on Hot Inflation, RBA Rate Hike Bets Rise

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The Australian Dollar (AUD) has strengthened significantly following robust inflation data released in late February 2026. Australia’s January CPI exceeded expectations, with core inflation reaching 3.4% year-over-year, driven largely by housing and electricity costs. This has fueled expectations of further tightening by the Reserve Bank of Australia (RBA), with markets now pricing in an 80% probability of a rate hike in May. The RBA recently raised its key interest rate to 3.85% and signaled a willingness to address persistent inflationary pressures. TD Securities and other analysts believe another rate hike is likely, potentially in May. Technical analysis suggests bullish momentum for AUD/JPY, targeting 112.50. However, a recent report indicated a slight contraction in 4Q Construction Work Done, potentially tempering some optimism. Simultaneously, uncertainty surrounding US tariffs and the US fiscal deficit is weighing on the US Dollar, providing additional support for the AUD. While the Fed is expected to cut rates, the RBA is projected to continue raising them, creating a divergence that favors the AUD/USD pair.

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