AUD/USD rose 0.17% to about 0.7085 early on Monday in the European session, as the Australian Dollar outperformed other major currencies. Markets awaited the Reserve Bank of Australia’s minutes from its February meeting, due on Tuesday.
At that meeting, the RBA lifted its Official Cash Rate by 25 basis points to 3.85%. It also kept the option of further tightening in response to upside inflation risks.
Markets Await RBA Minutes
The US Dollar traded broadly steady, even as expectations for a more cautious Federal Reserve approach in March and April remained in place. The US Dollar Index (DXY) edged up to about 96.95.
US inflation data showed further easing. Headline Consumer Price Index inflation fell to 2.4% year-on-year in January, down from 2.7% in December.
On the daily chart, AUD/USD held near 0.7085 while the 20-day exponential moving average rose to 0.6982. The RSI stood at 66, pointing to upward momentum without an overbought reading.
A rising trend line from 0.6669 provided support near 0.6997. A move below that line could shift attention back to the 20-day EMA as the next support level.
Strategy Ideas For Coming Weeks
We remember the optimism in early 2025 when the pair was pushing towards 0.7100. At the time, the Reserve Bank of Australia had just raised its cash rate to 3.85% and seemed ready for more. The outlook was supported by cooling US inflation, which dropped to 2.4% annually, suggesting a less aggressive Federal Reserve.
The situation has since inverted, creating a different environment for traders today. The RBA has since tempered its stance due to slowing domestic demand, with the cash rate now at 4.10% after a period of holding steady. Conversely, US inflation proved stickier than anticipated throughout last year, holding above 3% and forcing the Federal Reserve to maintain its higher-for-longer policy.
This policy divergence has pushed the AUD/USD down to around 0.6550, well below the bullish trend we saw in early 2025. The previous support levels around 0.7000 are now seen as significant resistance. For the coming weeks, we should consider strategies that benefit from range-bound trading or further downside.
This suggests that buying put options could protect against a further drop, especially with key US economic data on the horizon. Selling out-of-the-money call spreads might also be a viable strategy to collect premium, betting that the pair will struggle to reclaim its 2025 highs. We must watch central bank communications closely, as any unexpected shift could rapidly change this outlook.
