The Australian dollar has slipped from being one of the strongest performers in the G10 to the lower end of recent tables, pressured by fading domestic growth momentum alongside a firmer US dollar. AUD/USD has moved back towards 0.70 as the USD has strengthened, while softer Australian data has reduced market conviction that further Reserve Bank of Australia tightening lies ahead.
Markets continue to price in one more RBA rate rise this year and Rabobank expects a further hike in August. The bank adds that the rate path is sensitive to inflation risks linked to a potential closure of the Strait of Hormuz, even as the domestic activity outlook softens. Over a three-month horizon, it forecasts AUD/USD range trading around 0.70–0.71.
RBA Outlook And Trading Implications
We see the Australian Dollar is no longer a top performer as its growth momentum stalls. Australia’s Q1 2026 CPI came in at 3.4%, slightly below forecasts, prompting the RBA to adopt a more neutral stance in its June meeting. This has shaken conviction that further aggressive rate hikes are coming.
Given our expectation for the AUD/USD to trade sideways, we believe selling volatility is the appropriate strategy for the coming weeks. With the spot price currently around 0.7050, establishing short strangles or iron condors with strikes outside the 0.7000 to 0.7100 range looks attractive. Implied volatility has been decreasing, reflecting this outlook.
We are still pricing in one final 25 basis point rate hike from the RBA in August, which will depend heavily on the next quarterly inflation print. This potential hike, combined with ongoing tensions near the Strait of Hormuz, represents the main upside risk to our volatility-selling view. Traders should use stop-losses to protect against any sudden inflationary shocks.
External Factors Weighing On The Aussie
On the other side of the pair, persistent strength in the US Dollar will likely cap any significant Aussie rallies. The most recent US Non-Farm Payrolls report for May 2026 added a robust 210,000 jobs, reinforcing the Federal Reserve’s ‘higher-for-longer’ stance on interest rates. This dynamic anchors the AUD/USD pair and supports our range-bound thesis.
We are also watching key commodity prices, with iron ore recently slipping below $110 per tonne on signs of moderating demand from China. This is reminiscent of the 2018-2019 period, where a strong USD and tepid Chinese growth kept the Aussie dollar contained for many months. We expect this headwind to prevent any sustained break above the 0.71 level.
