AUD Drops 2.3% as Global Rates, Commodities and Risk Sentiment Overwhelm RBA

The Australian Dollar fell sharply in early 2025, sliding about 2.3% versus the US dollar within 48 hours of the Reserve Bank of Australia’s (RBA) February policy meeting despite the RBA’s cautious, data‑dependent stance. Major drivers were higher US interest rates (Fed policy rate ~5.25%), weaker commodity prices—iron ore fell ~8% month‑on‑month—and continued soft demand from China, which together shifted global risk appetite and capital flows away from resource‑linked currencies. Correlations show AUD’s link to iron ore rose to 0.78 while its tie to Australia‑US rate differentials fell to 0.42. Institutional flows reportedly included increased AUD short positions by hedge funds. Sector effects are mixed: exporters and tourism gain competitiveness, while importers face higher costs and potential inflationary pressure. Analysts note this is the largest policy‑currency disconnect since 2018 and expect continued volatility in AUD pairs; markets may normalize over 6–12 months as global monetary conditions and commodity cycles stabilize. Key figures and data: AUD -2.3% vs USD; RBA policy rate ~4.10%; Fed ~5.25%; iron ore -8% M/M; AUD–iron ore correlation 0.78. Traders should watch US Fed updates, China commodity demand indicators, iron ore and coal prices, and RBA communications for short‑term volatility and directional clues.