AUD/USD traded near 0.7090 in Asian hours on Tuesday after two days of gains, staying close to 0.7100. The Australian Dollar weakened as market mood turned cautious after mixed local data.
Westpac Consumer Confidence fell 2.6% month-on-month to 90.5 in February, a 10-month low, after a 25 basis-point rate rise. NAB’s Business Confidence Index rose to 3 in January from a downwardly revised 2, the highest since October.
Market Anticipation
Markets are awaiting the delayed January US jobs report and upcoming CPI data. These releases are being watched for clues on the pace of US slowdown and possible Federal Reserve rate cuts.
Traders expect the Fed to keep rates unchanged in March, with a first cut priced for June and another possible move in September. US inflation expectations eased, with the median one-year view falling to 3.1% in January from 3.4% in December, the lowest in six months.
Food price expectations stayed at 5.7%, while three- and five-year expectations held at 3%. US Treasury Secretary Scott Bessent did not rule out a criminal investigation into Kevin Warsh, President Donald Trump’s pick for Fed chair, if Warsh refused to cut rates.
Currency Comparison
The Aussie dollar continues to show weakness, currently trading around 0.6650, a significant drop from the levels seen in previous years. We see this pressure stemming from a clear policy divergence, with the Reserve Bank of Australia holding its cash rate while the US Federal Reserve signals a more dovetailed easing path. This fundamental difference is likely to weigh on the pair for the foreseeable future.
Looking back, we remember the concerns in early 2023 when consumer confidence first plunged on rate hikes. Today, that sentiment remains poor, with the latest Westpac Consumer Confidence index for February 2026 coming in at a subdued 84.2. This persistent pessimism at home gives the RBA little reason to adopt a more hawkish stance compared to its global peers.
The focus has shifted from *if* the Fed will ease to the *pace* of their cuts. With US core CPI now stabilizing around 2.5% year-over-year, the Fed has more room to maneuver than the RBA, which is still battling stickier domestic inflation. This backdrop supports a stronger US dollar relative to the Australian dollar.
A key driver of our negative outlook is the ongoing sluggishness in China’s economy, which has directly impacted demand for industrial metals. Iron ore prices have consequently fallen to around $105 per tonne, a sharp contrast to the highs above $130 per tonne we saw back in early 2024. This drop in Australia’s main export revenue directly undermines the currency’s value.
Given this environment, we are positioning for further AUD/USD weakness in the coming weeks. Buying March or April expiry put options with a strike price around 0.6600 offers a clear way to capitalize on a potential slide towards the 0.6500 support level. For a more defined risk approach, a bear put spread would also be a suitable strategy.
