The Australian dollar weakened to around $0.700 on Wednesday, a four-week low, as escalating geopolitical tensions overshadowed stronger-than-expected domestic GDP data. Official figures showed the Australian economy grew 0.8% in Q4 2025, with annual growth at 2.6%—beating forecasts and marking the fastest pace in nearly three years. The data underscored persistent price pressures and kept the prospect of further interest rate increases on the table.
RBA Governor Michele Bullock warned on Tuesday that another rate hike could be possible this month, citing the risk that inflation expectations could become unanchored. Markets are currently pricing in roughly a 30% probability of a March move, while a quarter-point rise to 4.10% is fully priced in for May. However, softer household consumption and more subdued unit labor costs helped curb expectations of imminent tightening.
At the same time, the widening conflict in the Middle East—unsettling financial markets worldwide—dampened risk appetite and overshadowed the robust GDP figures, putting additional pressure on the risk-sensitive Australian dollar.
