AUD/USD ends week higher – crucial AU GDP ahead

Risk sentiment lifts Aussie despite softer inflation

AUD/USD finished higher last week at 0.7184 (+0.79%), boosted by improved risk sentiment following reports of a potential 60-day ceasefire extension in the Iran conflict. This optimism weighed on oil prices, United States (US) Treasury yields and the broader US dollar, providing a modest tailwind for the Aussie.

The Aussie’s gains came despite last week’s softer domestic inflation data. Headline consumer price index (CPI) for April rose 4.2% year-on-year (YoY), down from 4.6% the previous month, softer than market forecasts, helped by lower petrol prices. The Reserve Bank of Australia’s (RBA) preferred measure, the trimmed mean, edged higher to 3.4% YoY from 3.3% YoY prior - largely as expected.

A cooling domestic economy, evidenced by softer labour market and inflation figures, has tempered expectations for multiple RBA rate hikes this year. This contrasts with a run of robust US economic data over the same period, which has increased the likelihood of at least one Federal Reserve (Fed) rate hike before year-end, thus supporting the US dollar and weighing on the Aussie.

The net result of this has been a narrowing of the yield advantage the Aussie enjoys over the greenback. Reflecting this shift, the yield on the Australian 10-year bond, currently at 4.89%, now holds a reduced 43 basis point (bp) premium over its US counterpart at 4.46%, down significantly from 63 bp in mid-May.

AUD/USD versus AU/US bond 10-year spread chart

Over the weekend, fresh geopolitical risks emerged. Reports indicate President Trump is pushing for stricter terms in the Iran deal, particularly regarding Iran’s enriched uranium stockpile. Additionally, footage of suspected naval mines in the Strait of Hormuz has surfaced, highlighting that any reopening of the waterway is unlikely to result in an immediate surge in supply.

While these developments have supported oil prices, AUD/USD and broader risk assets remain largely unfazed, with the pair trading around 0.7186.

This week, AUD/USD drivers will again centre on a mix of domestic and US data. Locally, Australia’s first quarter (Q1 )2026 gross domestic product (GDP) release (previewed below) takes focus. Offshore, markets will monitor developments in the Middle East and Friday night’s critical US jobs report.

AU – Q1 GDP

Date: Wednesday, 3 June at 11.30am AEST

For the fourth quarter (Q4) 2025, the Australian economy posted a solid 0.8% quarter-on-quarter (QoQ) gain, accelerating from 0.5% in the prior period and lifting the annual growth rate to 2.6% - its strongest pace in nearly three years.

Digging into the details, per capita GDP rose 0.4% for the quarter and 0.9% over the year, while the household saving-to-income ratio climbed to 6.9%, the highest level since September 2022. This reflected gross disposable income growth outpacing subdued household consumption, which rose a modest 0.3% QoQ.

Wednesday’s Q1 2026 release is expected to show a 0.5% QoQ increase, which would leave the annual growth rate unchanged at 2.6%. Markets will be paying close attention to the underlying breakdown - including details on the household savings rate, household consumption and per capita measures. Crucially, the data will provide a valuable baseline for how the Australian economy was faring in the lead-up to the Middle East conflict and the RBA’s recent rate-hiking cycle.

A softer print of 0.3% or lower would signal that higher inflation and interest rates are taking a heavier toll on household spending and confidence, reinforcing the view that domestic demand remains under pressure. Such a result would also increase the market’s building conviction that the RBA has concluded its tightening cycle. Conversely, an in-line or upside surprise would demonstrate ongoing economic resilience, keeping the door open for additional RBA tightening.

The interest rate market starts this week pricing in 2 bp of tightening for the RBA’s June meeting, with a cumulative 20 bp of hikes expected over the remainder of 2026.

AU GDP annual growth rate chart

AUD/USD technical analysis

AUD/USD lost some upside momentum last month, actually finishing May slightly lower. This isn’t particularly surprising given the sharp erosion of its yield advantage over the US dollar over the past fortnight, a dynamic highlighted in the chart above.

That said, as long as the currency pair holds above key support in the 0.7100 - 0.7075 region on a sustained basis, we are inclined to give the upside towards 0.7400 the benefit of the doubt.

However, should the Aussie see a decisive break below this critical support zone, it would warn that a deeper pullback is underway, with the psychological 0.7000 level acting as the initial downside target.

AUD/USD daily candlestick chart

• _{Source: TradingView. The figures stated are as of 1 June 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.}