Aussie Slips Ahead of RBA as Oil Tensions Boost Dollar

AUD/USD dropped on Monday ahead of the May Reserve Bank of Australia rate decision as renewed escalation around Iran and the Strait of Hormuz pushed oil prices higher and reignited demand for the liquidity of the U.S. Dollar. The move in oil has reinforced global inflation concerns and lifted U.S. Treasury yields, giving the greenback a bid while weighing on risk-sensitive currencies like the Australian Dollar. Despite Australia’s commodity linkage, the broader market tone shifted toward caution, with geopolitical risk driving flows rather than traditional terms-of-trade support. 

For the RBA, the backdrop remains increasingly complex. Markets are heading into the next policy decision with expectations for further tightening as inflation remains elevated and energy prices threaten another leg higher. The oil shock is feeding directly into Australia’s inflation outlook, strengthening the case for keeping policy restrictive even as growth risks build. But this is known; overnight index swaps have been fully discounting the RBA’s third rate hike of the year for some time now. The result is a session where AUD/USD weakness reflects global macro pressure rather than a shift in the underlying RBA trajectory. 

AUD/USD Daily Price History

In the above chart, AUD/USD achieved a fresh closing high for the year by the end of last week. A loss of the 5-day EMA (exponential moving average), coupled with the drop in Slow Stochastics from overbought territory, indicates that a small setback in the context of a broader uptrend is developing. The move above the 2023 high at 0.7158 has previously validated the bull flag breakout, so a loss of that level plus the one-month EMA, which has served as support on a closing basis since April 7, would indicate a more meaningful top is developing. Until such levels are crossed, bulls appear to remain in control. 

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