RBA's Lowe Signals Prolonged High Rates, AUD/USD Holds Gains Amid Hawkish Tone

What Happened

On February 3, 2026, following the Reserve Bank of Australia's (RBA) decision to raise the cash rate by 25 basis points to 4.35%, Governor Philip Lowe held a press conference that largely reinforced a hawkish outlook. While specific numerical data points beyond the rate hike itself were not disclosed by Lowe during the presser (as verified from the ABC News broadcast via YouTube), the overarching message was one of continued vigilance against inflation. Lowe explicitly stated that the RBA 'cannot rule out further increases in interest rates' and reiterated the central bank's commitment to bringing inflation back within its 2-3% target band. This stance was largely in line with market expectations for a cautious but firm approach to monetary policy, though some had hoped for a softer tone given recent economic cooling signals. The RBA's rate hike itself was up from the previous 4.10% and met consensus forecasts of a 25 basis point increase, as reported by ABC News.

Market Reaction

The Australian dollar (AUD) largely held onto its earlier gains following Governor Lowe's hawkish remarks. AUD/USD, which had already risen in anticipation of the rate hike, traded around 0.6975, showing resilience and a slight upward bias, having gained approximately 35 pips from its pre-announcement lows of 0.6940. Volume in AUD pairs remained elevated during the press conference, indicating active market participation reacting to the verbal guidance. Cross-asset correlations saw the ASX 200, Australia's benchmark equity index, pare some of its earlier gains, falling by approximately 0.3% to 7,505 points within the hour, as the prospect of prolonged high interest rates weighed on growth-sensitive sectors. Gold, typically a safe-haven asset, showed muted movement, reflecting the localized impact of the RBA's announcement rather than a broader shift in global risk sentiment.

Asset	Movement (Post-Presser)	Change (Approx.)
AUD/USD	+35 pips	0.6975
NZD/USD	+20 pips	0.6520
ASX 200	-0.3%	7,505 points

NZD/USD also saw a modest rise of about 20 pips to 0.6520, reflecting the close economic ties and sometimes correlated movements between the Australian and New Zealand dollars.

Why It Matters

The RBA's continued hawkish stance matters because it reinforces the "higher-for-longer" narrative for interest rates in Australia, a theme resonating across many developed economies. Governor Lowe's explicit refusal to rule out further rate hikes signals that the RBA remains highly concerned about inflationary pressures, despite recent signs of moderation. This suggests that the central bank prioritizes inflation containment over supporting economic growth in the short term. Historically, central banks that maintain a firm anti-inflationary stance tend to support their currency, as higher rates attract foreign capital seeking better yields. The market reaction, particularly the AUD's resilience, indicates that traders are interpreting Lowe's comments as a commitment to price stability, which is generally positive for a currency. For prop firms and traders, this translates into a potentially sustained carry trade environment for AUD, but also increased sensitivity to upcoming Australian inflation and employment data. This monetary policy stance could also impact the profitability metrics of funded accounts by influencing borrowing costs and investment returns within the Australian market.

What To Watch Next

The immediate focus will shift to upcoming Australian economic data releases. The next key event will be the Q4 2025 Wage Price Index on February 22, 2026, followed by the Q4 2025 GDP data on March 1, 2026. These reports will provide crucial insights into the underlying inflationary pressures and economic growth, which could influence the RBA's next moves.

Key Technical Levels for AUD/USD:

• Resistance 1: 0.7000 (Psychological level, recent high)
• Resistance 2: 0.7050 (Previous swing high)
• Support 1: 0.6950 (Immediate reaction low)
• Support 2: 0.6900 (Strong psychological and technical level)

Bullish Case for AUD/USD: If upcoming Australian inflation data (e.4. Q4 2025 CPI) remains elevated or wage growth accelerates more than expected, reinforcing the RBA's hawkish bias, AUD/USD could break above 0.7000, targeting 0.7050 and potentially higher. Traders should monitor any further hawkish statements from RBA officials. This scenario would be favorable for traders with long AUD positions on their funded accounts.

Bearish Case for AUD/USD: Conversely, a significant deterioration in Australian economic data, such as weaker-than-expected GDP or a sharp slowdown in employment, could lead the market to believe the RBA might pivot sooner than anticipated. A break below 0.6900 could open the door to 0.6850 and lower. Any dovish surprises from future RBA communications would also trigger this scenario. Traders should be mindful of risk management in such volatile conditions.

Trading Implications

Volatility in AUD pairs is expected to remain elevated, particularly around key data releases and RBA communications. Traders should anticipate wider spreads and potential slippage, especially during the London and New York sessions when liquidity is typically higher but news impact can be amplified. Position sizing should be adjusted to account for increased market uncertainty, possibly reducing exposure to mitigate potential drawdown. For prop firm traders, adhering strictly to Max Daily Drawdown and Max Total Drawdown limits is crucial. News trading strategies might find opportunities, but careful execution and robust stop-loss orders are paramount. Given the RBA's consistent hawkish tone, maintaining a slight long bias on AUD pairs against weaker currencies could be a viable strategy, but always with a keen eye on incoming economic data for any signs of a policy shift. Reviewing prop firm trading rules regarding news events is also advisable, as some firms may have restrictions on news trading during high-impact events.