May 4, 2026 – The Australian Dollar (AUD) climbed against major peers on Monday, supported by growing market expectations for a Reserve Bank of Australia (RBA) rate hike. Traders also weighed rising geopolitical tensions in the Strait of Hormuz, which added a risk premium to the currency.
The AUD/USD pair traded near 0.6720, up 0.4% from Friday’s close. The move came after stronger-than-expected Australian inflation data last week fueled bets that the RBA may raise rates at its June meeting. Markets now price in a 65% probability of a 25-basis-point hike, according to ASX 30-day interbank cash rate futures.
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RBA Rate Hike Bets Strengthen
Data from the Australian Bureau of Statistics showed the monthly Consumer Price Index (CPI) rose 3.8% year-on-year in March, above the RBA’s 2-3% target range. Core inflation, which excludes volatile items, also ticked higher.
“The inflation data has clearly shifted the narrative,” said a Sydney-based currency strategist at a major bank. “Markets are now pricing in a high chance of a rate hike next month.”
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The RBA has kept its cash rate at 4.35% since November 2024. Governor Michele Bullock has repeatedly said the board remains data-dependent. But the latest inflation print has forced a reassessment.
Industry watchers note that a rate hike would mark a reversal from the easing cycle that many had expected earlier this year. The implication is that the RBA may need to keep policy tighter for longer to contain price pressures.
Hormuz Tensions Add Risk Premium
Geopolitical risks also supported the AUD. Reports emerged over the weekend of a naval incident near the Strait of Hormuz, a key chokepoint for global oil shipments. While details remain unclear, the incident raised concerns about supply disruptions.
The Strait of Hormuz handles about 20% of the world’s oil transit. Any disruption there could push oil prices higher, which would have broad implications for global inflation and growth.
“The Hormuz situation adds another layer of uncertainty,” said a senior analyst at a Singapore-based research firm. “For the AUD, it’s a double-edged sword. Higher oil prices could hurt Australia’s trade balance, but the risk-off mood might also boost demand for safe-haven currencies like the USD.”
This suggests the AUD’s gains may be fragile. The currency has historically been sensitive to shifts in global risk appetite.
Technical Outlook for AUD/USD
From a technical perspective, AUD/USD is testing resistance at the 0.6720-0.6740 zone. A break above this level could open the door to 0.6800, a level not seen since February. Support sits at 0.6650, followed by 0.6600.
The 14-day Relative Strength Index (RSI) is at 58, indicating room for further upside before reaching overbought territory. However, the pair remains below its 200-day moving average, which is a bearish signal for the longer-term trend.
What this means for traders is that the near-term bias is bullish, but the broader trend remains uncertain. The outcome of the RBA meeting and developments in the Middle East will likely determine the next directional move.
What’s Next
Markets will focus on the RBA’s May 20-21 meeting minutes, due for release on June 3. Any hawkish language could cement rate hike expectations. Meanwhile, any escalation in Hormuz tensions could trigger a flight to safety, potentially capping AUD gains.
For now, the AUD is riding a wave of rate hike optimism. But the geopolitical backdrop serves as a reminder that risks remain elevated.
This article was produced with AI assistance and reviewed by our editorial team for accuracy and quality.
