AUD/USD traded in a tight range near 0.7060 on Tuesday, up by less than 0.1%. It has stayed within a roughly 150-pip band between 0.7000 and just under 0.7150 for almost four weeks, ahead of Australia’s CPI release on Wednesday.
The Reserve Bank of Australia raised rates by 25 basis points to 3.85% at its February meeting, the first increase since November 2023. Markets are pricing about 76% odds of another rise by May, with inflation still above the 2%–3% target band.
Australian Inflation In Focus
Australia’s January CPI is forecast at 3.7%, down from 3.8%, while trimmed mean CPI is expected to hold at 3.3%. The data is due on Wednesday and is a near-term driver for the Australian Dollar.
In US developments, President Trump announced new 15% global tariffs after a Supreme Court ruling last Friday against earlier tariff measures. US consumer confidence rose to 91.2 in February from 89, but the expectations index has stayed below the 80 recession-warning level for 13 straight months.
Technically, AUD/USD is above the 50-day EMA near 0.6890 and the 200-day EMA near 0.6660 after rising from the January low around 0.6590. A move above 0.7150 may target 0.7200, while a drop below 0.7000 may refocus attention on the 50-day EMA.
Looking back a year ago, we saw the Australian Dollar consolidating near 0.7100, with many anticipating another rate hike from the Reserve Bank of Australia. Markets were pricing in a move by May 2025 as inflation remained stubbornly high. The bullish structure seemed solid, with the price holding well above its key moving averages.
Shift In Market Regime
That optimism proved short-lived following the imposition of new 15% global tariffs by the US. This move soured risk sentiment and capped the Aussie’s rally just below the 0.7150 level. The uncertainty caused the pair to break its upward trend in the second quarter of 2025.
As we moved through last year, Australian inflation did begin to ease, with the latest quarterly data for December 2025 showing the Consumer Price Index had fallen to 3.1%. This was a significant drop from the 3.7% that had been forecast in January 2025. This cooling trend has fundamentally altered the RBA’s outlook from hawkish to neutral.
The RBA did follow through with one more rate hike in May 2025 to 4.10%, but has remained on hold ever since. We are no longer discussing when the next rate hike will be, but rather when the central bank might begin to consider easing policy. The market has now fully priced out any further tightening from the RBA for the remainder of 2026.
Today, with AUD/USD trading near 0.6620, the environment is completely different from the bullish consolidation we saw a year ago. The focus has shifted from buying dips in anticipation of a breakout to selling rallies near established resistance. The 50-day moving average, which was strong support back then, now acts as a key resistance level around 0.6710.
For derivative traders, this means strategies should be adjusted for a lower, more range-bound environment. Buying long-dated put options to protect against further weakness or selling call spreads above the 0.6750-0.6800 resistance area could be effective. The high volatility of early 2025 has subsided, making it a market for collecting premium rather than chasing momentum.
