AUD/USD Rally Faces Test from Middle East Tensions and AU Q4 GDP
The Australian dollar (AUD) has shown a notable rally against the US dollar (USD), closing last week at 0.7116, indicating a rise of 0.45%. This marked the sixth consecutive week of gains for the AUD, primarily fueled by unexpected inflation data from Australia and the strengthening of the Chinese yuan (CNY).
Driving Forces Behind AUD Rally
Last week, the surge in the AUD was significantly supported by Australia’s consumer price index (CPI) for January, which recorded a year-on-year increase of 3.8%. This exceeded the expected consensus of 3.7%. Additionally, core inflation, measured by the trimmed mean, increased to 3.4% from the previous 3.3%. Such data bolstered expectations for future tightening by the Reserve Bank of Australia (RBA) in 2026.
- Consumer Price Index (CPI): 3.8% YoY
- Core Inflation: 3.4% YoY
Moreover, the Chinese yuan continued its ascent, achieving a seventh consecutive month of growth. This alignment between the AUD and CNY has been a critical factor in the recent performance of the Australian dollar.
Impact of Middle East Tensions
Despite the strong performance, the AUD/USD pair faced challenges due to rising tensions in the Middle East over the weekend. The pair fell sharply, dropping 87 pips (1.2%) to a low of 0.7029 as investors sought safe-haven assets, boosting the USD. However, renewed buying interest emerged, supported by rising metals and energy prices.
Upcoming Influences on AUD/USD
Looking ahead, the AUD/USD exchange rate is likely to be influenced by several factors:
- Continued developments in the Middle East crisis.
- Fourth quarter (Q4) gross domestic product (GDP) data due on 4 March at 11:30 AM AEDT.
- Speeches from RBA officials, including Bullock, Hunter, and Hauser.
Q4 GDP Forecast
For Q4, the market anticipates a growth rate of approximately 0.6%, which would sustain the annual growth rate around 2.1%. This figure aligns closely with the RBA’s projection of 2.3% for December 2025.
| Quarter | GDP Growth Rate | Annual Rate |
|---|---|---|
| Q3 2025 | 0.4% QoQ | 2.1% YoY |
| Expected Q4 2025 | 0.6% QoQ | ~2.1% YoY |
As of now, financial markets are pricing a 93% chance that the RBA will maintain current interest rates later this month, with nearly a 100% probability of a 25 basis point increase expected in June.
The evolving situation in the Middle East and upcoming economic data will be pivotal for the AUD/USD exchange rate’s trajectory in the coming weeks.
