AUD/USD Hits Two-Year High Weekly Close Amid USD Rebound and Metals Decline

The AUD/USD currency pair achieved a significant milestone last week, closing at 0.6963. This marks a notable increase of 0.97%, representing the highest weekly close in two years. Despite reaching a peak of 0.7094 on Thursday, the Australian dollar faced downward pressure as the United States dollar underwent a broad rebound. Additionally, the precious metals market experienced substantial selling on Friday.

Market Influences

A key catalyst for this market movement was the nomination of Kevin Warsh by President Trump to replace Jerome Powell as the chair of the Federal Reserve (Fed). Warsh, who previously served as a Fed governor, is known for his hawkish views. However, his recent statements have suggested a more dovish approach, aligning with Trump’s preference for lower interest rates to stimulate growth.

The market’s response appeared to be more about adjusting existing dynamics rather than Warsh’s anticipated policy direction. Specific factors contributing to this volatility included:

• Overextended market positions, particularly in precious metals.
• A shift away from dovish expectations that were generated after Rick Rieder of BlackRock seemed a front-runner for the Fed chair position.
• Evidence that recent movements in precious metals had become overstretched following significant rallies.

Future Outlook for AUD/USD

Several factors are likely to influence the AUD/USD trajectory moving forward:

• The stabilization of precious metals and the broader commodity complex after recent volatility.
• The potential for elevated market volatility from early 2026 to affect equities and overall risk sentiment.
• Outcomes from the upcoming Reserve Bank of Australia (RBA) board meeting.

RBA Interest Rate Meeting

The RBA will convene on Tuesday, February 3, at 2:30 PM AEDT. In its last meeting in December, the RBA maintained its official cash rate at 3.60%, a decision that was widely anticipated. This was the RBA’s third consecutive hold on the rate, following rises noted in both headline and underlying inflation from the previous monthly CPI report.

The RBA expressed caution about overreacting to inflation data but acknowledged a general trend of rising prices that could persist. Further, the RBA noted improvements in private demand, a strengthening housing market, and a tight labor market with capacity utilization above the long-term average, suggesting potential upside risks regarding inflation.

Key Economic Indicators

Since the RBA’s December meeting, key indicators have shown stronger than expected results:

• December’s labor force report revealed an unemployment drop to 4.1%, down from 4.3%. This contradicts earlier predictions of a rise to 4.4%.
• The Q4 inflation report indicated the RBA’s preferred measure, the trimmed mean, rose 0.9% quarter-on-quarter, pushing the annual rate to 3.4%, surpassing the RBA’s forecast of 3.2%.

The current assessment of the Australian interest rate market indicates a 76% probability of a 25 basis point hike at this meeting, with expectations for an additional hike of the same magnitude by September 2026.

In conclusion, the AUD/USD’s recent performance amid currency and commodities markets suggests a complex interplay of factors ahead of the RBA’s significant policy meeting. The outcome will be closely monitored by investors looking to navigate future market conditions.