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By: David Scutt, Market Analyst
Australia’s central bank has delivered a decisive policy signal that reshapes both rate expectations and currency dynamics. In early 2026, the Reserve Bank of Australia returned to tightening, marking a clear break from the uncertainty that defined its previous guidance. Inflation is no longer framed as a temporary flare-up but as a material and persistent challenge driven by capacity constraints and stronger private demand. That shift has reinforced support for the Australian dollar, while simultaneously extending the risk that policy will need to move further into restrictive territory.
David Scutt, FOREX.com APAC Market Analyst at StoneX, has spent years analysing how central bank communication translates into market pricing across Asia-Pacific currencies. His regional macro focus and close tracking of policy signals position him to assess how Australia’s inflation outlook intersects with global risk appetite and foreign exchange volatility.
The Reserve Bank of Australia has made it clear that inflation pressures are stronger and more durable than previously assessed. David Scutt notes that inflation is no longer described as having merely picked up, but as having "picked up materially driven by capacity pressures", signalling a structural concern rather than a cyclical one. Trimmed mean inflation is not expected to return to the midpoint of the target band until 2028, even with the cash rate at 3.85 percent. As a consequence, markets are increasingly pricing in further tightening as policymakers attempt to contain demand-driven pressures.
The Australian dollar responded forcefully to the Reserve Bank of Australia’s hawkish shift, pushing back above the psychologically important 70 cent level against the U.S. dollar. On the technical front, Scutt highlights that price action remains constructive, with the currency "taking out several key levels" and momentum indicators confirming upside strength. However, he cautions that the Australian dollar remains highly exposed to shifts in global risk sentiment, noting that it is "very susceptible to changes in risk appetite". As a result, while domestic fundamentals support the currency, sustained gains will depend on broader market stability rather than policy alone.
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--- Written by Frédéric Guétin, StoneX TV Producer
--- Expert: David Scutt, FOREX.com APAC Market Analyst
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