AUD rebounds above 0.7000 as oil rally cools and markets brace for RBA rate rise

Safe-haven behaviour strengthens US dollar

The Australian dollar ended last week on a weak note, closing lower at 0.6981 (-0.71%) as the United States (US) dollar surged across the board. This move was driven by a combination of risk aversion, rising US yields, and higher energy prices stemming from the escalating conflict in the Middle East.

The US dollar’s strength was a classic safe-haven reaction, with investors seeking refuge as fears over the region intensified. Adding to this was the prospect of persistent inflation due to surging energy costs, which diminished near-term hopes for easing by the US Federal Reserve (Fed), lifting US Treasury yields.

Notably, AUD/USD had been remarkably resilient since the conflict began in late February. It even touched a 45-month high of 0.7189 in the middle of last week, driven by rising expectations of tighter Reserve Bank of Australia (RBA) policy, before geopolitical realities caused it to retreat over the weekend.

Middle East developments influence market sentiment

Over the weekend, developments in the region added new dimensions to the narrative. US forces struck military sites on Iran’s Kharg Island, the country’s primary oil export terminal, handling over 90% of its crude oil shipments. President Trump announced that the strikes successfully destroyed military targets while sparing oil infrastructure for now. However, he warned of further action if Iran continues to block the Strait of Hormuz.

Since then, a series of mitigating events have emerged. Iran’s Foreign Minister stated that the Strait remains open to all nations except the US, Israel, and their allies. Meanwhile, Saudi Arabia’s East-West pipeline is rerouting roughly 7 million barrels per day, with tankers already queuing for redirected cargo. Added to this is the planned release from the Strategic Petroleum Reserve (SPR) next week, along with reports of a coalition being assembled to escort ships through the Strait, making the 'doomsday' scenario less likely.

This shift in sentiment has led to crude oil prices falling back below $100 after reopening this morning, suggesting markets are pricing in a more contained outcome for now. Consequently, AUD/USD has received a gentle boost back above the 0.7000 handle, ahead of tomorrow’s crucial RBA meeting – the first of seven interest rate meetings by central banks this week.

RBA interest rate decision

Date: Tuesday, 17 March, at 2.30pm AEDT

At its last meeting in February, the RBA raised the official cash rate by 25 basis points (bp) to 3.85%. This was the first hike since November 2023, coming just six months after its last cut, and reflected a rapid shift back to tightening due to resurgent inflation pressures.

Since that February meeting, domestic data has been mostly stronger than expected across areas such as the labour market, inflation, and gross domestic product (GDP). While household spending and house prices have shown some moderation, the Board faces a difficult dilemma stemming from the Middle East conflict.

Typically, central banks try to look through global oil price shocks as temporary supply-side events. However, with inflation already above target, combined with last week's sharp jump in inflation expectations and hawkish communication from Deputy Governor Andrew Hauser, the RBA has limited room to manoeuvre.

Consequently, the Australian rates market is now pricing in around 18 bp of hikes for this week’s board meeting. This equates to roughly a 74% probability of a 25 bp increase, which would lift the cash rate from its current 3.85% to 4.10%.

Looking further out, the curve embeds approximately 70 bp of cumulative tightening by the end of 2026. This aligns closely with expectations for three 25 bp hikes in total this year, which would raise the cash rate to 4.60%, its highest level since October 2011.

RBA official cash rate chart

AUD/USD technical analysis

In our recent updates, we have been of the view that a decisive break above resistance at 0.7150 – 0.7170 was needed to indicate that the correction in AUD/USD from the mid-February 0.7147 high was over and that the uptrend had resumed.

However, after hitting a high of 0.7189 on Wednesday last week, AUD/USD promptly retreated, leaving that 0.7189 print as a possible Wave V (Elliott Wave high) – the final leg of a five-wave advance from the November 0.6419 low.

If this is correct, it means that AUD/USD has now entered a Wave IV pullback/correction, which should be well supported in the 0.6950 – 0.6900 zone.

Traders will be looking for signs of basing/stabilising in this support area to signal that the correction is complete and that the uptrend may be shortly set to resume. For now, the bias remains constructive on dips, provided key support holds.

AUD/USD daily candlestick chart

• _{Source: TradingView. The figures stated are as of 16 March 2026 Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}