The Australian Dollar (AUD) has emerged as the best performing G10 currency year-to-date, buoyed by expectations of further tightening from the Reserve Bank of Australia (RBA) and robust labor market data [1]. Rabobank highlights that after the February rate hike, the market initially anticipated a pause from the RBA, but inflationary concerns stemming from the Middle East conflict have kept the central bank vigilant about inflation expectations [1]. The March Australian labor data showed a headline employment increase of 17.9K, slightly below consensus expectations of +20K, but with a strong 52.5K rise in full-time jobs and a decrease in part-time positions, indicating a healthy labor market [1][2]. The unemployment rate remained steady at 4.3%, aided by a slight dip in the participation rate from 66.9% to 66.8% [2]. Both full-time and part-time hours worked increased in March, up 2.5% year-on-year compared to 0.9% in December 2025 [2].
Rabobank maintains a central view that AUD/USD will trade higher towards the 0.72 region by year-end, with further downside expected in EUR/AUD, potentially moving back towards the March low of around 1.6130 [1]. The market is currently fully pricing in another 25 basis point RBA rate hike within three months, encouraged by the firm labor data [1]. TD Securities notes that while the labor data matched RBA expectations and did not alter the central bank's outlook, potential headwinds from Middle East developments could impact the labor market in the coming months [2].
Looking ahead, both sources emphasize the importance of the upcoming Q1 CPI release on April 29, which will be a key determinant for the RBA's next rate decision and will guide expectations for the Australian Dollar [2]. RBA Deputy Governor Andrew Hauser, speaking at the Institute of International Finance Global Outlook Forum in Washington, D.C., acknowledged the challenges posed by the Iran shock and the difficulty in communicating the need for potential rate hikes amid high inflation and rising petrol prices [2]. Hauser noted, "Supply shocks are a hard sell to the public. Inflation is going to be higher, activity is going to be low, we’re going to be poorer. There’s not much upside news in that story" [2].
Overall, the relatively hawkish stance of the RBA and solid labor market data are keeping the AUD well supported, with analysts favoring AUD over EUR in the near term [1]. However, the direction of monetary policy and the AUD will hinge on the forthcoming inflation data and evolving global risks [2].
CONCLUSION
The Australian Dollar remains strong, underpinned by robust labor data and a hawkish RBA stance. Market participants are closely watching the upcoming Q1 CPI release on April 29, which will be pivotal for the RBA's next move and the AUD's trajectory. Until then, expectations for further rate hikes and a resilient labor market continue to support the currency.