The RBA lifted rates in February to 3.85%, the first rise in over two years. Meeting minutes flagged high inflation risks and left scope for more tightening, while January jobs data showed unemployment steady at 4.1% versus 4.2% expected and a fourth straight monthly fall in the number of unemployed.
US FOMC minutes said disinflation could be “slower and more uneven” than expected, and some members did not rule out rate rises. Markets price a 94% chance the Fed holds in March, with US Q4 GDP and core PCE due on Friday.
Technical Picture For Aud Usd
AUD/USD traded near 0.7050 on Thursday after reaching a year-to-date high of 0.7147 in early February. It remains above the 50-day EMA at 0.6865 and the 200-day EMA at 0.6625, extending an uptrend from January lows near 0.6664.
Price has moved sideways in a 0.7000 to 0.7100 range, with 0.7000 acting as support. The Stochastic Oscillator has turned down from overbought towards neutral, while doji and small candles near 0.7050 show uncertainty ahead of Friday’s US data.
Resistance is at 0.7147, then 0.7200 if broken. Support is at 0.7000, then 0.6900 and 0.6865.
Looking back to early 2025, we saw a tug-of-war as both the Reserve Bank of Australia and the US Federal Reserve signaled a firm stance on inflation. The Australian dollar was consolidating below the key 0.7147 resistance level at the time. This tight range reflected the market’s indecision over which central bank would remain more aggressive.
The RBA’s concerns from last year proved to be well-founded, as Australian inflation has remained sticky, with the latest quarterly CPI data showing it at 3.6%. In response, the RBA has held the cash rate at 4.35%, and our strong labour market, with unemployment currently at 3.9% according to the Australian Bureau of Statistics, gives them little reason to ease policy soon. This underlying strength continues to support the value of the Aussie dollar.
Policy Divergence And Trading Implications
Conversely, the Fed’s fears of “uneven” disinflation have largely subsided, as the US Core PCE Price Index has now fallen to a more manageable 2.6% year-over-year. This has shifted the market narrative completely, with federal funds futures now pricing in a greater than 70% chance of at least one rate cut by the third quarter of this year. This policy divergence is a major theme driving the currency markets.
This growing gap between a firm RBA and a softening Fed has pushed AUD/USD decisively through the 0.7147 resistance level that capped the market in early 2025. Implied volatility in AUD/USD options has increased from last year’s lows, reflecting the market’s anticipation of bigger moves driven by this central bank policy split. We are now navigating a landscape defined by this divergence.
For the coming weeks, we see traders positioning for further AUD strength against the USD. Buying AUD/USD call options with strike prices around 0.7400 offers a way to profit from continued upward momentum while defining risk. This strategy capitalises on the potential for the Fed to become even more dovish in its communications.
However, the main risk to this view is any unexpected strength in US economic data that could delay Fed rate cuts. Traders should therefore watch US employment and inflation figures closely. Using put options with strike prices below the old 0.7200 resistance-turned-support level could serve as a cost-effective hedge against a sudden reversal.
