Australian dollar outlook: AUD/USD eyes breakout as RBA hawkish tilt meets Hormuz chaos

• Aussie dollar pairs push to fresh multi-year highs overnight
• RBA’s Hauser delivers hawkish remarks, lifting hike expectations
• Hormuz headlines trigger sharp swings in crude markets
• AUD/USD coils within bull pennant below .7160 resistance
• U.S. CPI later today the key scheduled risk event

Summary

Aussie dollar pairs pushed to fresh multi-year highs overnight, buoyed by hawkish signals from the RBA, shifting rate pricing and resilient risk appetite. But while the domestic rates story has re-emerged as a supportive factor, it remains secondary to the torrent of geopolitical headlines driving crude markets. As long as developments tied to the Strait of Hormuz continue to dictate swings in oil prices, the Australian dollar is likely to remain highly reactive to shifts in broader risk sentiment

Hauser remarks shake up RBA hike expectations

Andrew Hauser, the Reserve Bank of Australia’s deputy governor, delivered a clear reminder on Tuesday that inflation remains the central problem facing policymakers ahead of next week’s rate meeting. “We have a problem with inflation. It’s too high,” he told The Conversation’s Politics with Michelle Grattan Podcast, noting headline CPI is running at 3.8% with underlying inflation at 3.4%.

Hauser indicated recent developments had tilted inflation risks in an unwelcome direction for policymakers. Referring to the jump in crude prices due to the Iran conflict, he said the shock was “clearly… an upside risk” to the Bank’s February forecasts, adding that “directionally it’s higher than the projection we published in February”. He warned that “higher prices from Iran… are not a helpful development from the perspective of our policy discussion”.

Hauser also pointed to domestic data highlighting limited slack in the economy. “Our economy currently has limited spare capacity,” he said, citing unemployment below expectations, firm labour demand and GDP growth of 2.6% over the past year, above the Bank’s estimate of the sustainable pace of around 2%. While he acknowledged uncertainty around the oil shock and softer consumption and unit labour costs, his overarching message pointed to persistent inflation pressure heading into the March decision.

The question markets need to ponder is why: why go on a podcast less than a week out from the March decision, with no major domestic data due in between, and deliver an undoubtedly hawkish message to markets unless he, or the Board, had something to say? If he was comfortable with market pricing, why bother unless it needed to be changed? The timing was also telling, with the interview released in the gap between the day and evening sessions on ASX 24, giving traders time to digest the message before liquidity returned.

Source: TradingView

Whether he intended it or not, Hauser’s remarks had an immediate and pronounced impact on market pricing for the RBA's March meeting. The implied probability of a hike derived from futures markets surged from less than 20% earlier in the day to around 59% at the time of writing, the highest level seen since the contract began trading.

As marked on the one-minute tick chart below, it also had an immediate and lasting impact on the Australian dollar, instantly sending it to the top of the G10 FX leaderboard, a position it held throughout European and North American trade before crude prices and the performance of US stocks took over as its primary drivers.

Source: TradingView

Crude chaos dominates sentiment

Tuesday’s session delivered a chaotic torrent of headlines for crude markets, whipsawing the Aussie dollar throughout. Prices initially fell in Asia and early European trade after President Donald Trump suggested the war with Iran was “very complete” and could end quickly, fuelling hopes disruptions to flows through the Strait of Hormuz may soon ease.

But the narrative quickly changed in North American trade. U.S. Energy Secretary Chris Wright posted on X that the U.S. Navy had escorted an oil tanker through the strait, only for the message to be deleted and the White House later clarifying no such escort had taken place. Reports also suggested Iran may have begun laying mines in the waterway before Trump said there were no confirmed mines while claiming U.S. forces had destroyed Iranian mine-laying vessels. Adding to the noise, G7 ministers discussed releasing strategic reserves but instead asked the International Energy Agency to assess the situation.

With conflicting headlines around the world’s most important oil shipping chokepoint, the chaotic price action looks set to remain the key influence on the Australian dollar on Wednesday.

Bull pennant keeps AUD/USD upside in play

Source: TradingView

It may not be the cleanest price action, but AUD/USD is showing signs of coiling within a bull pennant pattern, hinting at the risk of an eventual resumption of the broader uptrend. Tuesday’s breakout above the February 2023 high failed to stick, but the pullback has been limited, keeping the structure intact heading into Wednesday.

A decisive break above both the downtrend and the February 2023 high at .7160 would strengthen the bullish case, potentially opening the door for a retest of the June 2022 high at .7282. Should the price remain capped beneath the downtrend, the long downside wicks seen beneath .7000 over the past week suggest buyers remain active in that region.

Beyond pennant support, the 50DMA and horizontal support at .6900 are the key levels to watch.

RSI (14) and MACD hint at waning upside momentum, although both indicators have started to tick higher again over the past day. A continuation of that move would strengthen conviction in maintaining a bullish bias, favouring long setups over shorts.

AUD/JPY breakout holds above 112.09

Source: TradingView

For AUD/JPY, the combination of hawkish comments from Hauser and declining crude prices helped deliver a bullish breakout above 112.09, the high set earlier this month. With the breakout sticking so far, the level may now flip to providing support, offering a potential entry point for those considering longs.

Given the strong bullish trend, the positive slope of both the 50 and 200 day moving averages, along with the bullish signals from RSI (14) and MACD which have set fresh highs and staged a bullish crossover respectively, the preference remains to continue buying dips for the time being.

As for upside targets, the preference is to wait for potential topping patterns that deviate too far from the underlying trend, providing the opportunity to either square or short in search of a short-term retracement.

US CPI key (known) event risk ahead

Source: TradingView

For anyone trading the Aussie, there’s still the U.S. calendar to contend with, even if it’s likely to play second fiddle to developments tied to Hormuz. The February CPI report later in the session is the key risk event, with any significant deviation from consensus likely to have a meaningful impact on sentiment and therefore the Aussie.

An undershoot in the core measure may act as a catalyst for renewed upside, bolstering the prospect for the Fed to resume cutting rates in the months ahead. Conversely, an overshoot may complicate the risk picture, creating doubt over whether the Fed can act to support the labour market should the need arise, an outcome that may weigh on the risk-sensitive Aussie.