The previous strength of the AUD was mainly supported by a stable appetite for risk, rising commodity prices, and hawkish monetary policy.
The king loses his crown. The declining RBA advantage and the Strait of Hormuz problem
However, this engine has stopped running smoothly. While the still holds a high price, the other two pillars supporting the Australian dollar are clearly weakening.
“Investors are becoming less optimistic about a quick reopening of the Strait of Hormuz,” analysts at Crédit Agricole said.
The global market is starting to feel the real impact of disrupted supply chains, and shortages of components outside the oil sector are becoming everyday reality.
Read also: Oil prices react to the attack in the UAE. Do maximum fuel prices save Poland?
Moreover, disappointing directly hit Australia’s position as a key exporter.
At the same time, global bond markets are sending a clear signal that other central banks will soon tighten policy more aggressively to catch up with Australia. As a result, the previous AUD yield advantage is melting away.
“The AUD remains the largest long position in the market. The AUD/USD pair is therefore subject to a pullback in the near term, with 0.7100 being a key technical support level for the exchange rate,” economists said.
The latest RBA decision to raise the cash rate by 25 basis points to 4.35% shows that the situation has clearly spiraled out of control.
Inflation accelerated sharply at the end of 2025, and the beginning of 2026 confirmed huge demand pressure.
Conflict in the Middle East dramatically drove up fuel prices, and local companies are already preparing to pass higher costs onto consumers. This, in turn, will cause rising social unrest. Short‑term inflation expectations in Australia are dangerously rising.
Interestingly, the RBA board itself has been broken down. The decision to raise rates was made by a large majority (8 to 1), and one member advocated keeping rates at 4.10%.
Although after three consecutive hikes the RBA claims that monetary policy is appropriately positioned, cracks are visible in the bank’s structure.
Investors are now waiting for Tuesday’s minutes and the appearance of Sarah Hunter to see how deep this split is and whether Governor Michele Bullock truly still has the promised room for careful market observation.
Source: Trading Economics
Read also: Will the dollar rate surprise again? The expert issued a forecast for USD/PLN and EUR/USD. “It’s hard for me to believe there will be no more fires”
See also: The dollar rate on a long path to 4 PLN? The expert issued forecasts for USD/PLN and EUR/USD. “The dollar may gain”
Rate hike with division in the background
The Australian dollar to US dollar exchange rate on Monday, May 18 reached 0.71 USD.
According to Crédit Agricole analysts, it will trend downward to finally reach 0.70 USD by December 2026.
Earlier it will reach 0.73 USD at the end of June and 0.71 USD at the end of September.
Alongside central bank information, on Tuesday we will also learn the latest Australian consumer sentiment data.
Usually these indicators generate only moderate volatility in the currency market, but this time the situation is exceptional. Surveyed citizens were also asked to assess the new federal budget.
The latest fiscal decisions by the Canberra government sparked significant controversy, introducing, among other things, substantial asset tax hikes.
Chart. Australian dollar to US dollar exchange rate (AUD/USD)
Source: Trading Economics.
Read also: The dollar rate before a breakout chance? Expert: “Capital will flow back to USD”
See also: The dollar rate before a “nervous and dynamic” move, the euro waiting to fall? Expert issued a forecast for USD/PLN and EUR/USD
