Further Strength for the Australian Dollar After Higher Inflation

25 February was a significant up day for the Australian dollar as annual inflation held at 3.8%, increasing the probability that the Reserve Bank of Australia (RBA) will hold rates for longer or possibly hike further. Recent announcements of new American tariffs haven’t significantly affected the Aussie dollar. This article summarises recent economic data from Australia, then looks briefly at the charts of AUDUSD and AUDJPY.

Annual headline inflation in Australia has remained significantly above target since last summer, prompting the RBA to move against the general direction of travel among central banks and hike its cash rate early in February to 3.85%. The RBA signalled a data-dependent approach to rates in 2026, but this might suggest further hikes to come if inflation remains this high:

After spiking in July 2025, annual headline inflation in Australia continued to rise overall since then to the current 3.8%. Both January and December’s results were unexpectedly high, but last month’s figure was only 0.1% above the consensus. The withdrawal of states’ power rebates was a primary factor driving higher inflation in January. Meanwhile, the job market doesn’t seem to be slowing down significantly:

On the contrary, the last two job reports from Australia were positive on the whole, with January’s 4.1% unemployment also 0.1% below the consensus. There’s currently no sign that the uptick in unemployment since summer last year is likely to continue imminently. However, the rate of unemployment without seasonal adjustments moved up to 5.9%, suggesting that the RBA’s cited tight job market won’t necessarily continue.

Australia’s overall economic growth as measured by GDP remains pretty lacklustre on the whole but not as stagnant as some other major advanced economies. 0.4% GDP growth in the third quarter of 2025 was significantly higher than the low in the last few years of 0.1% in the last quarter of 2023.

The RBA and traders are also looking ahead to the Australian GDP data for the last quarter on 4 March. This is expected to be significantly stronger at around 0.8%. If so, that might suggest further hawkish signals from the RBA in its statement on 17 March, but it’s questionable whether this will be a renewed cycle of tightening or only one more hike is likely this year.

Current expectations from money markets suggest around an 80% probability of the RBA hiking to 4.1% in May. The RBA’s current projections suggest a peak of annual headline inflation around 4.2% this summer, so it’s important to monitor any updates to these.

AUD/USD Holds Near Three-year Highs

The Australian dollar headed for its fourth consecutive monthly gain against the US dollar in late February as traders increasingly expected one more hike from the RBA in 2026 and possibly the beginning of a new cycle of tightening. Although the Aussie dollar is normally sensitive to potential disruptions to trade, recent announcements about tariffs from the American Supreme Court and government haven’t affected AUDUSD clearly.

71c remains the main technical reference and around 71.5c a possible resistance. With the price so close to the three-year high, it’s difficult to determine a possible further resistance, but 72c is a candidate as a round number. The 161.8% weekly Fibonacci extension around 74.5c is far above the top of the daily chart and unlikely to be tested for the time being, but overall continuation of the uptrend seems possible with the slow stochastic not signalling overbought and volume remaining positive on the whole.

The 20 SMA is a strong dynamic support in the short term. Below there, the price might find further support around the 50 SMA from Bands and the 100% Fibo retracement near 69c. A deeper retracement than that would probably need a major shift in sentiment. Traders remain focused on the Australian GDP for the last quarter on Wednesday, 4 March, and of course, the NFP on Friday, 6 March.

AUD/JPY Reaches Fresh 36-year Highs After Inflation

The Australian dollar reached its highest intraday price against the yen since October 1990 on 25 February 2026 after Australia announced higher than expected annual headline inflation in January. Ambiguity over the possible directions of monetary policy has dominated the financial news from Japan recently, as the board of the Bank of Japan seems to be divided between pausing and continuing modest tightening.

The main challenge for new buyers of AUDJPY in this situation is finding a decent entry that isn’t too close to the recent very long-term high. Another retracement to the area of the 100% weekly Fibonacci might give such an opportunity ,depending on momentum and volume. ¥112 could be an upcoming resistance if the price reaches new highs.

The 20 SMA hasn’t recently been a clear dynamic support, but it could challenge a break below around ¥109.50. The uptrend has, on the whole, been quite consistent since around the middle of 2025, as shown by the relatively low ATR, a bit below one yen. As for AUDUSD, a key upcoming release which might drive the next direction is Australian GDP on 4 March; 0.8% as expected, or possibly even higher, could give AUDJPY a boost.

This article was submitted by Michael Stark, an analyst at Exness.

For the latest analysis, ideas for trading and more, follow Michael on X: @MStarkExness.

The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.