Forex Snapshot: RBA Hikes Rates as USD Bulls Eye Manufacturing Resurgence

Global currency markets are navigating a divergence in central bank policy trajectories this week, as the Reserve Bank of Australia (RBA) resumes tightening while analysts reassess the durability of the US economic engine.

RBA Delivers Hawkish Hike

The Australian Dollar (AUD) found support after the RBA raised its key cash rate by 25 basis points to 3.85%. The move, which aligned with consensus, was accompanied by explicitly hawkish guidance. RBA policymakers indicated that inflationary pressures remain persistent, signaling that the tightening cycle may not yet be complete. This stands in contrast to other G10 central banks that have largely paused or signaled cuts, providing yield support for AUD crosses.

Deutsche Bank: The Bull Case for USD

In the United States, macroeconomic data continues to challenge the “recession” narrative. Deutsche Banks Macro Strategy team released a report projecting a positive outlook for the Greenback through 2026. The optimism is anchored in the ISM Manufacturing Index, which unexpectedly surged, suggesting that the US industrial sector is re-accelerating.

However, the dollar's path is not without obstacles. Rival analysis from NAB notes that the USD recently touched multi-year lows due to speculative positioning and geopolitical headwinds. This tug-of-war between strong economic fundamentals and political uncertainty (Fed/White House) is likely to keep EUR/USD and GBP/USD volatility elevated in the near term.

Regional Moves

• EUR/JPY: The pair has climbed to 183.80, driven by relative stability in the Eurozone contrasted against political election uncertainty in Japan.
• GBP: Sterling yield spreads are richening, particularly in the 5-year sector, offering underlying support to the Pound despite a thin data calendar.