Australian Dollar Holds Range Amid RBA Hikes and Middle East Tensions

Sticky Inflation, a Hawkish RBA, and a World on Edge

The Aussie has been one of the better-performing G10 currencies in recent months, and the reasons are well-grounded. The Reserve Bank of Australia hiked its cash rate by 25 basis points to 3.85% at its February 3 meeting, breaking a two-year holding pattern, and followed up with another 25 basis point hike to 4.10% at its March meeting. Governor Michele Bullock cited a material pickup in inflation during the second half of 2025 as the primary driver, with Australia's trimmed mean CPI running at 3.3% annually as of February 2026, well above the RBA's 2 to 3% target band. Markets have since priced in the possibility of further tightening at the May meeting, particularly as elevated oil prices from the Middle East conflict threaten to push headline CPI toward 5% by mid-year, according to Westpac economists.

On the other side of the ledger, the US dollar has faced its own headwinds, though the picture has grown considerably more complicated. The Federal Reserve has kept its benchmark rate unchanged at 4.25% to 4.50% since December 2024, and markets are now deeply divided on whether any easing arrives at all in 2026. CME FedWatch currently assigns just a 27.5% probability to even a single cut by December, with JPMorgan forecasting zero cuts for the year and the Fed's own dot plot projecting at most one 25 basis point reduction. The Iran war has been a decisive factor in this repricing, as elevated oil prices feed directly into inflation and erode the Fed's room to ease. Political uncertainty surrounding the replacement of Fed Chair Jerome Powell, whose term ends in May, adds a further layer of institutional uncertainty hanging over the dollar.

The elephant in the room is the ongoing US-Iran conflict and its impact on the Strait of Hormuz. Since the US and Israel launched air strikes against Iran on February 28, 2026, the strait has been effectively closed to most commercial shipping. The IEA has characterized the disruption as the largest supply shock in the history of the global oil market. On April 7, President Trump announced a two-week suspension of military operations against Iran in exchange for Tehran allowing safe passage through the strait, causing Brent crude to plunge more than 14% on the day. The ceasefire has improved global risk sentiment and given the Aussie a fresh bid, though analysts caution that the situation remains a conditional pause and not a resolution. For Australia, which exports significant quantities of LNG and commodities to Asia, the geopolitical backdrop cuts both ways: elevated oil prices feed domestic inflation and support the case for RBA hikes, while a deterioration in Chinese demand from the energy shock is a headwind to commodity export revenue.

What the Market Has Done

• Since December 2025, the market has been in an uptrend, characterized by higher lows and steady buyer participation on dips.
• In January, buyers stepped up bids and compressed price action against 0.675 (daily level 4), signaling accumulation ahead of a potential breakout.
• On January 21, the market imbalanced higher out of value. This started a strong directional move for the remainder of January with price expanding toward 0.713 (daily level 2), which has acted as long term resistance since 2023.
• Sellers have since responded at the 0.713 area, defending this level and preventing further upside.
• Buyers have consistently defended the 0.69 area (daily level 3), establishing it as a key support and forming a consolidation range since the end of January.
• Recently, the market conducted a liquidity check below the 0.69 area, where sellers attempted to push prices lower but failed to find continuation. Buyers responded by stepping back in, bidding price back into the established range, reinforcing the current balanced structure. 

What to Expect in the Coming Weeks

The key level to watch is the 0.713 area (Daily level 2).

Neutral

• Expect the market to revisit the 0.713 area (Daily level 2 / consolidation range high), where sellers are expected to respond, causing price to rotate back down toward the 0.69 area (Daily level 3). Two-way rotation within the current range remains the base case.
• This scenario is most likely if the US-Iran ceasefire holds but fails to produce a lasting deal within two weeks, leaving global energy markets in a state of sustained uncertainty. In this environment, neither a risk-on nor a risk-off bias would dominate, keeping the Aussie rangebound.

Bullish

• If buyers start to step up and hold bids at the 0.699 area (range mid / 2026 VWAP), that is the first clue that the bullish scenario is in play. A sustained bid at range mid signals buyer conviction and willingness to absorb any remaining seller pressure.
• If market breaks and accepts above the 0.713 area (Daily level 2), expect a move up toward the 0.728 area (Daily level 1), which has acted as long-term resistance since 2022, where sellers are expected to respond.
• The macro trigger for this scenario would be a durable resolution to the US-Iran conflict, allowing oil prices to normalize and global risk sentiment to recover materially. Combined with a May RBA rate hike continuing to widen the policy divergence between the RBA and a Fed firmly on hold, a break above 0.713 would have strong fundamental support behind it.

Bearish

• If sellers step down offers at the 0.699 area (range mid / 2026 VWAP), that is the first clue that the bearish scenario is in play, signaling that buyers are unwilling or unable to defend the middle of the range.
• If buyers are not able to defend the 0.69 area (Daily level 3), expect a move down toward the 0.675 area (Daily level 4), where buyers are expected to respond.
• The possible macro trigger here is already partially in play. Despite the initial ceasefire announcement on April 7, reported violations have seen the Strait of Hormuz effectively re-restricted, with Iran allowing only Iranian-linked vessels to transit. Should this deteriorate into a full resumption of hostilities and a complete closure of the strait, oil prices would likely push back above $100 per barrel, collapsing global risk appetite and boosting safe-haven USD demand. This would pressure commodity currencies like the Aussie hard, particularly if sustained energy costs begin to meaningfully erode Chinese import demand and weigh on Australia's commodity export revenue.

Conclusion

Technically, 6A sits in a well-structured consolidation between 0.69 and 0.713, with the range mid at 0.699 acting as the near-term battleground between bulls and bears. The macro backdrop remains broadly supportive for the Aussie on the policy divergence front, with the RBA having delivered two consecutive rate hikes while the Fed stays firmly on hold with little to no easing expected for the remainder of 2026. However, the Middle East conflict is the wildcard that could override any clean technical setup. The Strait of Hormuz, despite a brief opening following the April 7 ceasefire, has since been re-restricted to Iranian-linked vessels only, keeping the energy shock very much alive. A durable resolution and full reopening of the strait would likely unlock bullish momentum toward 0.713 and beyond, while a breakdown in negotiations and renewed escalation would put the 0.69 support under serious pressure. Which side of the range gives way first will tell us a great deal about where the Aussie is headed for the remainder of 2026. Watch your levels.

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Disclaimer:

This article is provided for informational and educational purposes only and does not constitute financial, investment, or trading advice. The analysis presented reflects the author’s market observations and opinions at the time of writing and is not a recommendation to buy or sell any futures contract, security, or financial instrument. Futures trading involves significant risk and is not suitable for all market participants. Losses may exceed initial margin deposits, and market conditions can change rapidly.

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