The RBA hiked interest rates from 3.60% to 3.85% in their February decision, marking the official start of their tightening cycle and triggering AUD rallies on a hotter inflation outlook despite some risk-off vibes.
Which AUD strategies moved beyond the watchlist stage, and how did the hawkish outcome translate to price action amid a complex risk sentiment backdrop?
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We’re breaking down our Aussie setups this week and examining how each pair performed after the RBA interest rate hike while markets navigated the shifting geopolitical mood between the U.S. and Iran, as well as gold’s rangebound behavior.
The Setup
What We Were Watching: RBA Monetary Policy Statement (February 2026)
- Expectation: RBA to hike interest rates from 3.60% to 3.85%
- Data outcome: The central bank increased borrowing costs in a unanimous decision while highlighting stronger-than-expected inflationary pressures, possibly lifting future tightening odds
- Market environment surrounding the event: Markets opened on wobbly footing after official Chinese PMI figures printed over the weekend fell short, though hawkish RBA positioning stayed in play. Traders initially cheered positive news about negotiations between the U.S. and Iran after the RBA decision, but risk appetite eventually faded as markets rotated out of tech sector stocks and overall caution lingered ahead of other key central bank events.
Event Outcome
The RBA lifted interest rates from 3.60% to 3.85% through a unanimous vote, with policymakers putting the spotlight on stronger inflationary pressures and concluding that “the rate was no longer at the right level to get inflation back to target in a reasonable time frame.”
Governor Michelle Bullock stated that the economy is supply-constrained and inflation will remain above the 2-3% target for some time and stressed that the economy is “even a little bit more constrained than we thought.”
Key Takeaways:
- RBA raised its cash rate to 3.85%, reversing one of three cuts delivered in 2025 and marking the first major central bank globally to shift from easing back to tightening
- Inflation picked up significantly in the second half of 2025, with private demand growing faster than expected and capacity pressures greater than previously assessed
- Statement on Monetary Policy revealed significantly higher inflation forecasts, with core inflation now expected to reach 3.2% by end-2026, up from November’s 2.7% projection, and not returning to the 2.5% midpoint until mid-2028
- Updated forecasts assume the cash rate rising to 3.9% by June and 4.2% by December, implying roughly two additional hikes in 2026
The Australian dollar, which had been moving cautiously lower ahead of the RBA decision, rallied sharply across the board when the RBA statement revealed that policymakers voted unanimously to hike interest rates instead of reflecting some degree of dissent.
The Aussie gave back a portion of its post-statement gains around 30 minutes after the announcement and briefly dipped following Governor Bullock’s press conference as she stopped short of pre-committing to further tightening. Still, AUD stayed steadily above pre-event levels despite resurfacing risk-off flows in the later trading sessions.
Fundamental Bias Triggered: Bullish AUD Setups
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Broad Market and Exogenous Drivers:
Calm Before the Storm (Monday to early Tuesday): Markets opened the week on cautious footing after digesting weekend news of China’s manufacturing sector slumping back to contraction and the OPEC+ confirmation that March output levels would remain steady. Trump’s announcement of the trade deal between the U.S. and India, along with de-escalation developments in Iran, helped prop risk appetite higher, while the U.S. ISM manufacturing PMI return to expansion also lifted the demand outlook.
Geopolitical Flareup & Tech Sector Slump (late Tuesday to Thursday): Technology stocks came under heavy selling pressure driven by AI-related disruption fears midweek, spurring further declines in the crypto sector as well. News of the U.S. Navy shooting down an Iranian drone also soured the market mood, leading nuclear deal negotiations to hit a snag the next day. Traders stayed on edge ahead of major central bank events (ECB and BOE) while downbeat U.S. JOLTS job data kept labor market concerns in play.
End-of-Week Risk Rebound (Friday): Progress on diplomatic talks between the U.S. and Iran, as well as Ukraine and Russia, turned market frowns upside down before the week came to a close. Commodity currencies, crypto, and other risk assets saw a tentative recovery and continued to pull higher in the latter trading sessions, extending to modest upside momentum for U.S. equities, thanks in part to a surprise improvement in U.S. consumer sentiment data.
GBP/AUD: Bullish AUD Event Outcome + Risk-Off Scenario = Arguably good odds of a net positive outcome
GBP/AUD 1-hour Forex Chart Faster with TradingView
Our GBP/AUD watchlist idea focused on a descending trend line and Fibonacci retracement play in the event the RBA makes a hawkish move that sharply contrasts with a potentially dovish Bank of England (BOE) announcement later in the week.
The pair already picked up on some bearish vibes early in the week, likely due to risk-taking spurred by positive global trade and geopolitical updates, though it hovered cautiously around the Fib levels leading up to the target event.
The hawkish RBA announcement triggered a sharp break lower for GBP/AUD, dragging it down to the swing low at S1 (1.9510) immediately after the interest rate hike as the central bank also upgraded inflation forecasts and kept the door open for further tightening.
GBP/AUD proceeded to consolidate around the support zone in the days that followed, as the shift to a risk-off environment from the tech sector selloff and slump in commodities kept Aussie gains in check. Still, positioning for Thursday’s BOE decision also left pound traders biting their nails, before the U.K. central bank delivered a “dovish hold” and eventually spurred additional downside for the pair.
The risk rebound on Friday leaned in favor of the Aussie, as traders likely recalibrated biases based on RBA and BOE monetary policy divergence, allowing GBP/AUD to extend its decline to fresh intraweek lows before the close.
The combination of a hawkish RBA announcement and the shift in risk-taking on tech sector weakness rendered this GBP/AUD setup eligible to move beyond the watchlist stage. Contrasting RBA and BOE central bank biases and a late risk rally kept it below pre-event and post-RBA levels, then added momentum for the move later on.
Traders who established bearish positions around the trend line resistance and 61.8% Fib ahead of the actual event would have caught the majority of the move, while a breakdown entry around the 1.9600 major psychological mark would have also bagged decent pips until the swing low. Keeping the bearish position open in the days that followed entailed some level of event risk during the BOE decision, though this would have also yielded additional pips on the late Friday breakdown.
Not Eligible to Move Beyond Watchlist – AUD/JPY & Bearish AUD Setups
AUD/JPY: Bullish AUD Event Outcome + Risk-On Scenario
AUD/JPY 1-hour Forex Chart Faster with TradingView
Our analysts flagged a symmetrical triangle pattern on the hourly chart of AUD/JPY, projecting that a break higher could take place in case the RBA hikes interest rates and sends hawkish signals in a risk-on environment.
The pair dipped to the triangle support as market sentiment was shaky early in the week, then proceeded to hover around the resistance ahead of the target event while risk appetite picked up on positive trade and geopolitical headlines. AUD/JPY broke above the triangle top when the RBA tightened policy and even upgraded inflation forecasts, extending its rally past R1 (108.88), then briefly consolidated above this zone in the sessions that followed.
The pair went on to climb to R2 (109.99) the next day while the yen underwent a fresh selloff on account of Japanese officials downplaying intervention threats, initially outweighing safe-haven demand as markets shifted to risk-off mode midweek.
Even though this setup foresaw a bullish Aussie reaction, the turn in market sentiment driven by AI-related tech sector rotation and flaring geopolitical tensions between the U.S. and Iran made this idea ineligible to move beyond the watchlist stage.
A couple more days of risk aversion proved strong enough to spur rallies for the lower-yielding JPY, pulling AUD/JPY back close to pre-RBA levels, though the 200 SMA dynamic inflection point and the 108.00 area held as support enough to boost the pair to R2 and new intraweek highs on Friday’s risk rebound.
AUD/CAD: Bearish AUD Event Outcome + Risk-On Scenario
AUD/CAD 1-hour Forex Chart Faster with TradingView
Our analysts flagged AUD/CAD’s uptrend from mid December and outlined a possible pullback toward deeper retracement zones, including the 50% Fibonacci level or even trend line support, in the event of a dovish RBA outcome.
Instead, AUD/CAD found support near the 38.2% Fibonacci area and pushed to fresh weekly highs above .9550 after the RBA’s updated projections pointed to the possibility of further rate hikes. The event turned decisively bullish for the Aussie, keeping our bearish AUD/CAD setup from moving beyond the watchlist stage.
Selling pressure returned soon after the pair topped out near .9600, as a sharp drop in gold prices and weaker US jobs data curbed risk appetite and Aussie demand over the following sessions. AUD/CAD ended the week back near .9500, closer to the watchlist zone than the intended entry areas.
AUD/JPY: Bearish AUD Event Outcome + Risk-Off Scenario
AUD/JPY 1-hour Forex Chart Faster With TradingView
Our analysts flagged a potential bearish breakout for AUD/JPY if the RBA held rates and leaned dovish, particularly if risk-off conditions boosted demand for the safe-haven yen over the Aussie.
Instead, the RBA delivered a unanimous 25 bp hike with guidance pointing to further tightening, fully invalidating the bearish AUD case. Easing US-Iran tensions also supported risk sentiment through the Asian and early London sessions, removing the risk-averse backdrop that the setup depended on.
Rather than slipping from pre-event levels near 107.50, AUD/JPY surged, pushing above 108.00 and later making fresh weekly highs near 110.00. While tech-driven risk aversion and some profit taking likely pulled the pair back below 108.50, AUD/JPY still ended the week near highs as traders possibly positioned ahead of Japan’s weekend elections.
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The Verdict
The February RBA decision turned out more hawkish than expected, as policymakers hiked interest rates while also upgrading inflation forecasts to suggest scope for additional tightening. Risk-taking was shaky early in the week, as the Chinese PMI returned to industry contraction contrasted with some positive trade developments, before sentiment eventually turned heavily against higher-yielding assets on a prolonged tech sector slump and resurfacing US-Iran tensions.
In addition, positioning ahead of a likely dovish U.K. central bank decision kept some pressure on sterling during the first half of the week, before the actual BOE event put GBP on the back foot despite the risk rebound later on.
Overall, we’d rate this week’s discussion as “highly likely” supportive of a potential positive outcome, as the pair bounced neatly off the trend line resistance zone eyed and was able to stay below the target event levels for the remainder of the week, with AUD holding its ground against GBP despite risk-off flows.
Although downside momentum already started picking up before the actual RBA announcement, the pair still staged a sharp selloff to the support levels eyed and extended its decline while traders adjusted positions to reflect BOE vs. RBA monetary policy divergence.
Key Takeaways:
Policy Outlook Influences Risk Rankings
Even though there were a couple of key shifts in market sentiment throughout the week, it was ultimately the stark divergence between the monetary policy bias between the RBA and BOE that kept the Aussie reigning supreme against the pound. GBP/AUD even managed to hold on to its post-RBA event lows while risk-off flows picked up midweek while sterling barely benefitted from Friday’s risk rebound, highlighting how interest rate expectations play a major role in positioning.
Midweek catalysts complicate trade management
The RBA decision hit early in the week, with the ECB and BOE events still ahead. That forced traders to manage RBA-driven positions through fresh volatility that could either help or hurt the original move. Short-term traders who booked profits early likely avoided the US tech selloff, while longer-term positions had to absorb shifting sentiment from later central bank events.
Pullbacks often beat chasing breakouts around big events
The RBA move created an early session rally, but the US session brought a very different risk tone. Traders who waited for pullbacks into key levels got better entries and clearer risk control than those chasing the initial spike. Big fundamentals rarely move in straight lines, especially when multiple major events are stacked in the same week.
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