The RBA appears to have ended its monetary policy easing cycle. Now the Australian dollar can enjoy itself, supported by global stock indices and China. Let’s discuss these topics and make a trading plan for the AUD/USD pair.
The article covers the following subjects:
Major Takeaways
- The RBA does not consider a rate cut in the near future.
- Investors anticipate monetary tightening.
- China and stock indices support the aussie.
- Long trades on the AUD/USD pair can be considered with the target of 0.682.
Weekly Fundamental Forecast for Australian Dollar
By announcing the end of the monetary expansion cycle, Reserve Bank of Australia Governor Michele Bullock has made the Australian dollar the most sought-after currency in the Forex market. The futures market gives a 1-in-3 chance that the RBA will increase the cash rate in February and is fully confident the rate will be increased by May. This hawkish shift by the RBA has accelerated the rally in AUD/USD quotes.
Market Expectations for RBA Rate
Source: Bloomberg.
Michele Bullock does not expect a reduction in the key rate in the near future. This means that the rate can be either increased or the central bank may pause. These options will be discussed at the upcoming Reserve Bank meetings.
Bullock’s rhetoric has pushed Australian bond yields to their highest level since November 2024. Rates on Australian bonds are the highest among developed countries, which, against the backdrop of a stock market rally and strong global risk appetite, is supporting the AUD/USD pair.
Australia has had three acts of monetary expansion, making the Reserve Bank’s cycle one of the shortest and least extensive among the G10 countries. Only Norway has cut rates twice in three months. At the same time, the futures market expects the RBA to be the most proactive in the new monetary tightening cycle, adding 31 bps to the cash rate, which is more than in New Zealand and Sweden.
Duration and Scope of Central Banks’ Monetary Policy Adjustments
Source: Bloomberg.
Japan is leading with its 50 bps to the overnight rate in 2026, but the BoJ’s sluggishness in 2025 has made the yen an underdog. What will happen next year?
Along with divergence in monetary policy and soaring global risk appetite, the AUD/USD pair is receiving support from Asia. Donald Trump wanted to use tariffs to stimulate manufacturing in the United States. In fact, the US leader has helped China ramp up manufacturing. Notably, industrial production in China grew by 7% in the first 10 months of 2025 compared to the same period last year, and the foreign trade surplus reached a record $1 trillion.
China is Australia’s main trading partner, so its success in bypassing tariffs has benefited the Australian economy, and the yuan’s rally has boosted AUD/USD quotes.
The future of the aussie will depend on inflation. Westpac considers the acceleration in CPI to be temporary and predicts a resumption of the RBA’s monetary expansion cycle. In contrast, National Australia Bank argues that consumer prices will continue to pick up, leading to a rise in the cash rate.
Weekly AUDUSD Trading Plan
I believe that the second scenario is more likely, allowing traders to open long positions on the AUD/USD pair on pullbacks. The first target for long positions at 0.667 has almost been reached. The second target can be increased from 0.672 to 0.682.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of AUDUSD in real time mode
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