While markets are recovering from the news that Kevin Warsh is likely to become the new Fed chair, the US dollar is stabilizing. The RBA has an opportunity to push the AUD/USD pair higher. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The RBA may be the first to raise rates in 2026.
- The Australian dollar’s gains are linked to expectations.
- The US dollar may stabilize.
- Long trades on the AUD/USD pair can be opened on pullbacks to 0.69 and 0.6865.
Weekly Fundamental Forecast for Australian Dollar
Is the RBA ready to increase its key rate for the first time since November 2023? Following an acceleration in consumer prices and a decline in unemployment, the futures market is indicating a 73% probability of monetary policy tightening. If the RBA fails to do so, it will face a wave of criticism for its inability to tame inflation. At the same time, it will cast doubt on the AUD/USD pair’s ability to resume its upward trend.
Central banks usually act in unison, led by the Fed. However, in 2026, the paths of regulators are likely to diverge. While the US resumes its monetary expansion cycle, most other G10 countries will likely have ended theirs. The exceptions are Japan, New Zealand, and Australia, which are expected to increase their interest rates.
Fed and RBA Interest Rates
Source: Bloomberg.
The aussie and kiwi were the top-performing currencies among their G10 counterparts in January. The Bank of Japan’s sluggishness prevented the yen from joining them. Only the news about Donald Trump’s choice of Kevin Warsh as the new Fed chairman allowed AUD/USD bears to launch a counterattack.
However, the claim that the former FOMC official is a hawk is debatable. Kevin Warsh may have once been a hawk, but he is now a proponent of lower interest rates and sincerely believes that even a strong economy can have low inflation. This approach appeals to Donald Trump. The US president has joked that he will sue his nominee if he does not loosen monetary policy.
While the markets digest the news about Kevin Warsh, the US dollar may stabilize against the world’s major currencies. Events beyond the US will be needed to move any currency pair. In this regard, the RBA meeting, at which the central bank may raise the cash rate by 25 basis points to 3.85%, is an excellent opportunity to capitalize on the news.
Australian Dollar and Index of Key Commodity Prices
Source: Bloomberg.
Recently, it has become common to monitor events in the Forex market. Donald Trump is glad to see the US dollar weakening. Japan is using verbal interventions against the yen. The ECB is concerned about the euro’s excessively rapid surge. The RBA could also voice its concern about the Australian dollar’s rally, which is outpacing commodity price growth. In fact, the gains in the AUD/USD will keep inflation under control, which is good news for the RBA.
Weekly AUDUSD Trading Plan
There are three possible scenarios. First, the cash rate will remain unchanged, and the RBA’s rhetoric will also see no changes, causing the aussie to plummet. Second, Michele Bullock’s hawkish speech and unchanged interest rates will be a reason to buy the AUD/USD pair on a pullback from 0.69 and 0.6865. If monetary policy is tightened, short positions can be considered at 0.7015 and 0.7055.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of AUDUSD in real time mode
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