AUD/USD posts two-year high weekly close despite Warsh-driven USD rebound and metals rout

Market volatility triggers shifts in AUD/USD

AUD/USD finished last week at 0.6963, posting a solid 0.97% gain for its highest weekly close in two years.

Its gains came despite a sharp reversal lower from Thursday's 0.7094 peak, as the United States dollar (USD) mounted a broad rebound and precious metals came under intense selling pressure on Friday. The trigger was President Trump's nomination of Kevin Warsh to succeed Jerome Powell as Federal Reserve (Fed) chair.

Warsh carries a hawkish reputation from his time as a Fed governor earlier in his career, yet his more recent comments have tilted dovish, broadly in sync with Trump's clear preference for lower interest rates to fuel economic growth.

Consequently, Friday's volatile reactions in metals and foreign exchange (FX) markets appear to have stemmed less from Warsh's anticipated policy stance and more from an unwinding of several market dynamics.

These include:

• Overextended positioning, specifically long precious metals and short USD
• A reversal of the dovish expectations that had been priced into asset markets after BlackRock's Rick Rieder briefly emerged last week as a frontrunner for the Fed chair position
• Clear indications that market moves, particularly in precious metals, had become overheated following their parabolic rallies

Factors influencing AUD/USD

Looking ahead, the path for AUD/USD will likely be shaped by three key factors.

1. The speed at which precious metals and the broader commodity complex stabilise following the recent shakeout.
2. Whether the elevated market volatility experienced during the opening weeks of 2026 across multiple asset classes leads to broader contagion into equities and more cautious risk sentiment ahead.
3. The outcome of tomorrow's Reserve Bank of Australia (RBA) board meeting, previewed below.

RBA interest rate meeting

Date: Tuesday, 3 February at 2.30pm AEDT

At its last meeting in December, the RBA kept its official cash rate on hold at 3.60%, as widely expected. This unanimous decision marked the RBA’s third consecutive hold.

This decision followed October's monthly consumer price index (CPI) report, which showed a rise in both headline and underlying inflation. While the RBA expressed caution about reading too much into the new monthly CPI data, the figures nonetheless pointed to a broader-based rise in inflation, parts of which could prove persistent.

The RBA also noted that growth, particularly in private demand, was picking up, the housing market continued to strengthen, the labour market remained tight, and surveys indicated capacity utilisation was above its long-run average. All these factors combined suggest that 'the risks to inflation had tilted to the upside.'

During the subsequent press conference, Governor Bullock confirmed the RBA did not consider a rate cut at the meeting but did discuss scenarios that could necessitate a hike. She reiterated that if inflation pressures proved more persistent, the RBA would be compelled to consider whether higher rates were needed.

Since the December board meeting, key data points have come in firmer than expected. The December labour force report showed the unemployment rate falling to 4.1% from 4.3%, defying expectations of a rise to 4.4%. Last week's fourth-quarter (Q4) inflation report further solidified concerns, showing the RBA’s preferred measure, the trimmed mean, rising by 0.9% quarter-on-quarter (QoQ). This pushed the annual rate to 3.4%, exceeding the RBA’s own 3.2% forecast.

The Australian interest rate market currently shows 19 basis points (bp), or a 76% probability, of a 25 bp rate hike priced in for tomorrow’s RBA board meeting. Mindful that the RBA never hikes just once, the market is pricing in a second 25 bp RBA rate hike by September 2026.

RBA cash rate chart

AUD/USD technical analysis

After AUD/USD’s remarkable run higher in the opening month of 2026 came to a halt last week, the focus switches to what happens next.

Technically, the pullback from the 0.7094 high is viewed as a healthy correction within a bull market rather than a reversal lower.

Support is initially viewed at the 0.6900 level it gapped high from at the start of last week, before a more important layer of medium-term support at 0.6800.

Providing it remains above these support zones, a retest of the 0.7094 high is expected with potential to extend into the 0.7150 – 0.7200 zone if the RBA delivers multiple rate hikes this year.

Aware that a clean break below 0.6800, however, would raise questions about the bull trend's strength and open the door to a deeper pullback towards 0.6700.

AUD/USD daily candlestick chart

• _{Source: TradingView. The figures stated are as of 2 February 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.}