AUD/USD rose 0.17% to around 0.7085 early Monday in the European session, as the Australian Dollar outperformed other major currencies. Markets were waiting for the Reserve Bank of Australia (RBA) minutes from its February meeting, due Tuesday.
At that meeting, the RBA raised its Official Cash Rate by 25 basis points to 3.85%. It also left the door open to more rate hikes if inflation risks stayed high.
The US Dollar was mostly steady. Expectations for a more cautious Federal Reserve in March and April remained in place. The US Dollar Index (DXY) ticked up to about 96.95.
US inflation continued to cool. 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 (EMA) rose to 0.6982. The RSI was 66, showing bullish momentum without signaling overbought conditions.
A rising trendline from 0.6669 supported the pair near 0.6997. A break below that line could shift focus back to the 20-day EMA as the next support level.
We remember the optimism in early 2025, when the pair pushed toward 0.7100. Back then, the RBA had just lifted its cash rate to 3.85% and sounded open to more tightening. That view was helped by falling US inflation, which dropped to 2.4% year-on-year and hinted at a less aggressive Fed.
Since then, the picture has flipped, creating a different setup for traders. The RBA has softened its tone as domestic demand slowed. The cash rate is now 4.10% after a period of holding steady. Meanwhile, US inflation stayed higher than expected last year, remaining above 3%. That forced the Fed to keep its “higher for longer” stance.
This policy gap has pulled AUD/USD down to around 0.6550, well below the bullish trend seen in early 2025. Old support near 0.7000 is now key resistance. Over the next few weeks, traders may want to focus on range-trading strategies or position for more downside.
One approach is to buy put options to hedge against a further decline, especially with major US data releases coming up. Another is to sell out-of-the-money call spreads to collect premium, based on the view that the pair may struggle to retake its 2025 highs. Central bank messaging remains crucial, as any surprise shift could quickly change the outlook.
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