The AUD/USD pair reached 0.6960, rising 0.60% on Tuesday, marking its highest point since February 2023. Support for the pair stems from strong Australian economic fundamentals and a weak US Dollar.
Australia’s 3-year Bond yield increased to 4.27%, the highest since November 2023. Economic indicators like employment rates and PMI data suggest the Reserve Bank of Australia may maintain a hawkish stance despite disinflation trends.
Upcoming Australian Inflation Data
Upcoming Australian inflation data is anticipated to give insights into future monetary policy. Even as inflation eases, it remains higher than the central target of 2%-3%, potentially delaying monetary policy easing.
The US Dollar faces challenges from political and institutional uncertainties impacting confidence. Concerns over a potential US government shutdown and Federal Reserve debates contribute to pressure.
US labour market indicators suggest a slowdown in hiring, possibly prompting a more accommodating Federal Reserve tone later. This scenario encourages a move from US Dollar into other currencies like Australian Dollar, benefiting from higher yields.
As Australian yields stay high and US Dollar remains under pressure, AUD/USD is expected to trade near peaks. The heat map shows other currencies’ changes, with AUD showing strength against USD.
AUD/USD Prospects and Strategies
With AUD/USD pushing past 0.6950 to its highest point since early 2023, the upward trend appears to have strong legs. We believe the path of least resistance is higher, so derivative strategies should be positioned for further AUD strength against the USD. This is driven by the clear divergence in monetary policy, with Australian fundamentals holding firm while the US outlook softens.
The Australian side of the equation is supported by yields, and we see this continuing. After last quarter’s inflation data in 2025 came in at a sticky 3.9%, well above the target range, the Reserve Bank of Australia has little reason to consider cutting its 4.35% cash rate. Therefore, buying call options on AUD/USD seems like a reasonable way to gain exposure to more potential upside in the coming weeks.
Conversely, uncertainty is weighing on the US Dollar, making it an attractive currency to short. The looming threat of a partial government shutdown, which we saw narrowly avoided in late 2025, adds a layer of political risk that investors dislike. This, combined with a cooling US jobs market where forecasts for the next report are a modest 160,000, reinforces expectations for Federal Reserve rate cuts later this year.
The upcoming Australian inflation data will be the next major catalyst and will likely increase volatility. A strong reading would almost certainly fuel another leg up for the pair, making current long positions more profitable. We would advise traders to watch the implied volatility on options contracts, as it will likely increase leading up to that key data release.
