Middle East escalation and AU Q4 GDP to test AUD/USD six-week winning streak

Aussie dollar rallies on inflation data and yuan strength

AUD/USD extended its impressive run last week, closing at 0.7116 (+0.45%) to mark a sixth consecutive week of gains. The rally was driven by hotter-than-expected Australian inflation data and ongoing strength in the Chinese currency.

The Australian dollar's (AUD) run last week received a significant boost from January's consumer price index (CPI) print, which came in at 3.8% year-on-year (YoY) – above the 3.7% consensus – while trimmed mean (core) inflation rose to 3.4% from 3.3%, both exceeding expectations. This reinforced expectations of further Reserve Bank of Australia (RBA) tightening in 2026.

Meanwhile, the Chinese yuan, with which the AUD is closely correlated, continued its ascent, posting a seventh straight month of gains before China's central bank intervened to temper the move.

The unrelenting climb in AUD/USD temporarily halted this morning after Middle East tensions over the weekend showed signs of spilling into a wider regional conflict.

AUD/USD plunged 87 pips (-1.2%) to a low of 0.7029 as safe-haven flows boosted the US dollar (USD). However, buyers quickly emerged, attracted by surging metals and energy prices and anticipating upcoming corporate buying from major miners ahead of dividend payments, pushing AUD/USD back above 0.7105 this afternoon.

Upcoming influences on AUD/USD

Looking ahead, AUD/USD will be influenced by headlines and risk sentiment from the Middle East crisis, alongside Wednesday’s fourth quarter (Q4) gross domestic product (GDP) figures as previewed below. It will also be affected by speeches and comments from RBA representatives Bullock, Hunter, and Hauser, who are expected to speak this week.

Q4 GDP

Date:  Wednesday, 4 March at 11.30am AEDT

For the third quarter (Q3) 2025, GDP expanded by 0.4% quarter-on-quarter (QoQ), below the 0.7% consensus forecast but still sufficient to see the annual rate rise to 2.1% from 1.8% prior. This marked the Australian economy's sixteenth consecutive quarter of growth.

Within the details:

• Per capita GDP: was flat (0.0% QoQ), following a 0.3% rise in the June quarter
• The household saving-to-income ratio: increased to 6.4% from 6.0%, as nominal disposable income growth outpaced spending amid ongoing cost-of-living pressures
• Household spending: grew 0.5% QoQ, contributing 0.3 percentage points (pp) to GDP, slower than the prior quarter's revised 0.7%
• Inventories: detracted -0.5 pp from growth, with mining stocks drawn down to meet coal export demand
• Net trade: subtracted -0.1 pp, as imports rose 1.5%, outpacing exports (+1.0%)
• Labour productivity (GDP per hour worked): rose 0.2% QoQ and 0.8% through the year — a modest improvement, but still below the ~1% annual trend needed for sustainable gains
• Government spending: grew 0.8% QoQ (contributing 0.2 pp), driven by state and local outlays on health, education, and social benefits, such as Medicare and the Pharmaceutical Benefits Scheme
• Public investment: rebounded 3.0% QoQ (contributing 0.2 pp) after three consecutive declines, boosted by renewable energy and water infrastructure, road and rail projects, and defence spending on domestic weapon platforms.

Overall, domestic final demand, especially private investment at +2.9% QoQ, led by machinery and equipment for data centres, did the heavy lifting for the 0.4% rise in Q3, offsetting drags from inventories and trade.

At this point (before the final partials are released), the market is anticipating a rise of approximately 0.6% for Q4, which would maintain the annual rate around 2.1% YoY - just below the RBA’s forecast of 2.3% for December 2025.

A number in line with this will not significantly alter expectations for the RBA’s next interest rate hike, expected in May 2026. The rates market starts the week pricing in a 93% chance that the RBA will keep rates on hold later this month. There is almost a 100% -23 basis points (bp) - probability of a 25 bp rate hike priced for June.

AU GDP chart

AUD/USD technical analysis

In line with last week’s update here, the view remains that after AUD/USD hit a high of 0.7147 in mid-February, it was due for a period of consolidation, which is largely what has played out.

Looking ahead, a decisive break above resistance at 0.7150 – 0.7170 would indicate the correction from the recent 0.7147 high is complete and would clear the path for the AUD to make further gains towards 0.7500. Until then, expect further consolidation, with potential pullbacks toward 0.6900.

AUD/USD daily candlestick chart