Aussie dollar holds firm as focus shifts to a high‑stakes Federal Budget

Aussie dollar supported by rates and commodities

AUD/USD finished higher last week at 0.7247 (+0.62%), marking its fifth week of gains out of the past six. The Aussie’s rise was supported by a combination of robust risk sentiment, increased interest rate support following the Reserve Bank of Australia (RBA)’s recent hike, and a broad‑based push higher in key commodities, notably copper and iron ore.

The RBA’s three recent rate hikes, taking the cash rate to 4.35%, have helped widen the yield advantage of the Aussie over several major currencies. This includes the United States (US) dollar, where the Federal Reserve (Fed) funds rate currently sits in a range of 3.50% - 3.75%. At the same time, resilient global risk appetite continues to favour AUD/USD, which often acts as a barometer for risk sentiment. Furthermore, with iron ore and copper both pushing higher last week, Australia’s key export prices remain well supported, providing a solid underlying tailwind for the currency.

Geopolitics add near‑term volatility

This morning, the latest developments in the Middle East have added a fresh layer of complexity. President Trump labelled Iran’s response to the latest US peace proposal as ‘totally unacceptable’, sending crude oil surging above $100 (up 5.70%) on reignited supply concerns.

That geopolitical flare‑up has predictably seen the safe‑haven US dollar catch a bid. However, the reaction in risk assets, and by extension AUD/USD, has so far been relatively contained. At the time of writing, AUD/USD is trading around 0.7235 (-0.17%), as underlying commodity strength and interest‑rate support are currently outweighing safe‑haven flows into the greenback.

Markets turn to inflation and consumer sentiment

Looking ahead, AUD/USD will be driven by a familiar mix of local and offshore forces. Offshore, hotter‑than‑expected US consumer price index (CPI) data could reinforce the safe‑haven US dollar and test the Aussie’s recent resilience. On the domestic front, tomorrow’s consumer confidence print for May will be closely watched for any further deterioration in household sentiment.

Then comes the big one – Treasurer Jim Chalmers’ Federal Budget on Tuesday, 12 May 2026 at 7.30pm AEST (tomorrow night), where the key changes for markets are previewed below.

Federal Budget

Date: Tuesday, 12 May at 7.30pm AEST

Tomorrow’s Federal Budget is widely expected to be one of the most important in years. Treasurer Jim Chalmers is framing it as a ‘responsible budget focused on resilience and reform’.

For markets, the two biggest measures expected are as follows:

1. Negative gearing changes: negative gearing will reportedly be restricted to new‑build homes only for purchases made after budget night, with existing properties fully grandfathered. This shift fundamentally makes leveraged property investment much less attractive going forward.
2. Capital gains tax overhaul: the capital gains tax (CGT) 50% discount is being overhauled, likely shifting to an inflation‑indexed system. Assets bought after budget night will reportedly get the old 50% discount for a one‑year grace period, before switching to the new rules from 1 July 2027. Existing assets are expected to be largely grandfathered.

Bottom line: long‑term investments in both property and shares are set to become less tax‑advantaged, meaning a higher effective tax rate on profits when sold.

Some analysts argue the biggest winner from these changes will actually be the tax‑free owner‑occupied home. This may see investors pull money out of shares, businesses, commercial property and rental housing, pouring it instead into their own primary residences. This could perversely drive owner‑occupier prices higher, push rents up and starve productive businesses of vital capital.

Others view these specific changes as a clear negative for established housing prices and medium‑term sentiment. With Australian banks heavily exposed to residential mortgages, any sustained fall in property prices could lift mortgage stress and bad debts, ultimately putting significant pressure on bank profits and their share prices.

Either way, tomorrow night is shaping up to be a very important one for housing, investors and broader financial markets. Tax and financial planning specialists are expected to spend weeks and months working out what it all means, and the flow‑on effects to asset prices could play out over many quarters.

AUD/USD technical analysis

The Aussie’s rally from its late‑March low of 0.6831 extended further last week, reaching a fresh four‑year high of 0.7277 – a solid 6.5% gain from those lows.

From a technical perspective, the short‑ and medium‑term uptrend remains firmly intact as long as AUD/USD holds above key support at 0.7100. The next major upside target is 0.7400, a level last seen in April 2022.

That said, a sustained break below 0.7100 would signal the uptrend is tiring and open the door to a deeper pullback, with initial support then located at the psychologically important 0.7000 level.

AUD/USD daily candlestick chart

• _{Source: TradingView. The figures stated are as of 11 May 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.}