AUD/USD extends its gains for the second successive session, trading around 0.7020 during the Asian hours on Monday. The pair appreciates as the commodity-linked Australian Dollar (AUD), often seen as a liquid barometer of global risk sentiment, gains ground amid easing concerns over AI-driven disruption and revived investor confidence.
The AUD also receives support after hawkish comments from the Reserve Bank of Australia (RBA) Governor Michele Bullock, saying that the board lifted the Official Cash Rate (OCR) because the economy is more capacity-constrained than previously judged, meaning policy needed to be tighter. Bullock added that the RBA needs to dampen demand growth unless supply capacity can expand faster.
Australia’s Household spending fell 0.4% month-over-month (MoM) in December 2025, reversing a 1.0% increase in the previous month and missing market expectations for a 0.2% rise. This marked the first monthly contraction since March 2024, reflecting the impact of persistent cost pressures and elevated interest rates. Spending grew 5.0% year-over-year (YoY), the slowest pace in four months, easing from a 6.0% gain in November.
The risk-sensitive AUD/USD pair gained ground after Bloomberg reported that Iran’s President Masoud Pezeshkian called Friday’s nuclear talks with the US “a step forward,” while rejecting intimidation. Foreign Minister Abbas Araghchi said further negotiations depend on consultations in Washington and Tehran and require no threats. Meanwhile, US President Donald Trump said another meeting is planned this week, warning of “very steep” consequences if no deal is reached.
Traders will closely watch the delayed release of the US January employment report on Wednesday. The US economy is expected to add 70,000 jobs, while the Unemployment Rate is forecast to hold steady at 4.4%.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Source: https://www.fxstreet.com/news/aud-usd-rises-above-07000-due-to-hawkish-tone-surrounding-rba-outlook-202602090111
