Australian Dollar outperforms its peers as hawkish RBA bets swell further

The Australian Dollar (AUD) trades higher against its major currency peers, flattening against the US Dollar (USD) around 0.7240, during the European trading session on Wednesday. The antipodean strengthens as market expectations for the Reserve Bank of Australia (RBA) raising its Official Cash Rate (OCR) in the August policy meeting after the budget 2026 announcement on Tuesday.

Markets still imply around a 20% chance of a June hike to the 4.35% cash rate, but the probability of an August hike to 4.60% nudged further above 80%, according to a Reuters report.

In the 2026 budget, Australian Treasurer Jim Chalmers lowered tax rate for citizens having income between $18,201 and $45,000 to 15% from July 2026, a move that will leave general public with higher purchasing power and boosts inflation expectations in an already high-inflation economy.

Meanwhile, investors await the meeting between United States (US) President Donald Trump and Chinese leader Xi Jinping during Trump’s visit to Beijing on May 13-15. Given that the Australian economy relies meaningfully on its exports to Beijing, the outcome of the Trump-Xi meeting will have a significant impact on the Australian Dollar.

During the day, the US Dollar also trades firmly due to increased expectations of at least one interest rate hike by the Federal Reserve (Fed) this year. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.3% higher to near 98.58, the highest level so far this month.