Risk-On Asia And Hawkish RBA Propel Aussie Higher

Australian Dollar surged broadly in Asia session, drawing fresh strength from a hawkish RBA rate hike that reinforced expectations of further tightening later this year. The move gave the Aussie an extra tailwind on top of an already constructive regional backdrop.

Risk appetite in Asia has been firm, with the latest boost to sentiment coming from a surprise breakthrough on trade. The US and India reached an agreement to immediately lower tariffs on each other's goods. Under the deal, US tariffs on Indian goods will be cut sharply to 18% from 50%, bringing India broadly in line with Asian peers at 15–19%. In return, India agreed to halt purchases of Russian oil and reduce a range of trade barriers, according to US President Donald Trump.

Indian Prime Minister Narendra Modi also committed to significantly increase purchases of US products. Modi later confirmed the tariff reduction in a post on X, hailing the agreement as a major win for Indian exports. The announcement followed closely on the heels of India's landmark free trade agreement with the European Union, which Modi described as the "mother of all deals."

While the trade news supported risk currencies, Yen remained under pressure amid mixed messaging from Tokyo. Japan's Finance Minister Satsuki Katayama today defended Prime Minister Sanae Takaichi's recent remarks on the benefits of a weaker yen, saying they reflected standard economic theory. Katayama stressed that Takaichi was speaking in general terms, noting that while a weak Yen has downsides, it can also support corporate revenues, domestic investment, and exports. The comments added to confusion over how tolerant authorities are of further yen depreciation.

Overall this week so far, the Aussie sits firmly at the top of the FX performance table, followed by Kiwi and Dollar. Swiss Franc trails at the bottom, with Yen and Euro also lagging. Sterling and Loonie are trading in the middle of the pack.

In Asia, at the time of writing, Nikkei is up 3.85%. Hong Kong HSI is down -0.06%. China Shanghai SSE is up 0.44%. Singapore Strait Times is up 0.92%. Japan 10-year JGB yield is up 0.018 at 2.255. Overnight, DOW rose 1.05%. S&P 500 rose 0.54%. NASDAQ rose 0.56%. 10-year yield rose 0.034 to 4.275.

RBA delivers expected hike, forecast path points to another move

The RBA raised the cash rate by 25bps to 3.85% as widely expected, with the decision taken unanimously. While the accompanying statement avoided any explicit commitment to further tightening, the updated forecasts carried a more hawkish undertone.

Notably, the new projections are built on an assumption that the policy rate rises further to around 4.2% by the end of this year. That implicitly points to at least one additional hike being needed in the Bank's view to contain resurging inflationary pressures.

In its statement, the RBA acknowledged that a broad range of recent data confirms inflationary pressures "picked up materially" in the second half of 2025. While part of the acceleration is judged to be temporary, the Bank highlighted that private demand is growing faster than expected, capacity pressures are higher than previously assessed, and labour market conditions remain slightly tight. Against that backdrop, the Board concluded that inflation is "likely to remain above target for some time," justifying today's move.

The message suggests policy is shifting from fine-tuning toward a more deliberate effort to re-anchor inflation expectations. The revised forecasts reinforce that view. CPI is now projected to peak at 4.2% in June 2026, up sharply from the previous 3.7% estimate, before easing to 3.6% by December 2026 and only gradually returning to 2.7% by end-2027. Trimmed mean inflation was also revised higher across the horizon, with the peak lifted to 3.7% in mid-2026.

Growth and labour market assumptions remain resilient. Average GDP growth for 2026 was revised up to 2.1% (from 1.9%), while the unemployment rate was nudged lower to 4.3% (down from 4.4%) next year, before edging higher to 4.5% in 2027. That profile suggests the RBA sees room to keep policy restrictive without inflicting material damage on employment, keeping the door open for further tightening if inflation fails to cool as projected.

AUD/USD uptrend to resume to 0.72 after hawkish RBA hike

Aussie rallied broadly after the RBA raised the cash rate by 25bps to 3.85%, in line with expectations. While the decision itself was fully priced, the accompanying forecasts carried an implicit signal that another rate hike is likely later this year, providing fresh support to the currency.

AUD/USD quickly pushed back above the 0.7000 mark following the announcement. Technically, strong support has been established at 55 4H EMA, suggesting that the recent consolidation from the 0.7093 should remain shallow and temporary.

Decisive break above 0.7093 would confirm continuation of the broader uptrend from 0.5913 (2025 low). In this scenario, AUD/USD would be on track to 100% projection of 0.5913 to 0.6706 from 0.6420 at 0.7213 in the next leg higher.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.6947; (P) 1.7016; (R1) 1.7091;

EUR/AUD's decline resumed by breaking through 1.6892 temporary low and intraday bias is back on the downside. Sustained trading below 100% projection of 1.8554 to 1.7245 from 1.8160 at 1.6851 will pave the way to 138.2% projection at 1.6351 next. On the upside, break of 1.7145 resistance is needed to indicate short term bottoming. Otherwise, will remain bearish in case of recovery.

In the bigger picture, fall from 1.8554 medium term top is still in progress. Sustained break of 38.2% retracement of 1.4281 to 1.8554 at 1.6922 will argue that it's already reversing whole up trend from 1.4281 (2022 low). Deeper fall would be seen to 61.8% retracement at 1.5913. For now, risk will stay on the downside as long as 55 D EMA (now at 1.7418) holds even in case of strong rebound.

Source: ACTIONFOREX