AUD/USD traded near 0.7080 in Monday’s Asian session, up 0.10% on the day. It was still below last week’s three-year high. The pair stayed in the mid-0.7000s, with traders watching for a move toward 0.7100.
The US dollar remained in a tight range as markets leaned toward a more dovish Federal Reserve. After softer US consumer inflation data on Friday, traders increased bets on a June rate cut.
Markets also expected the Fed to deliver at least two 25 basis point rate cuts in 2026. In contrast, the Reserve Bank of Australia (RBA) was seen raising rates again in May, which supported the Australian dollar.
China’s inflation data last week raised concerns about ongoing deflation pressure in the world’s second-largest economy. The numbers also increased expectations for more fiscal and monetary stimulus. That kind of support in China often helps the Australia-linked currency.
Focus now turns to the FOMC Minutes on Wednesday and Australian employment data on Friday. Other key drivers for the Australian dollar include RBA policy, Australia’s 2–3% inflation target, iron ore prices, China’s demand, the trade balance, and overall risk sentiment.
Iron ore is Australia’s largest export, worth about $118 billion a year based on 2021 data.
The policy gap between the Federal Reserve and the RBA creates a clear opportunity. Markets are pricing more than a 70% chance of a Fed rate cut by June, while the RBA is expected to hike as soon as May. This difference supports strategies that benefit from a higher AUD/USD over the coming weeks.
Recent US dollar weakness is largely tied to inflation data. January CPI came in below expectations at 2.9%. This strengthens the view that the Fed will need to ease policy. Futures markets point to at least two rate cuts this year. In this setup, it is hard to make a strong case for staying long the US dollar against the Aussie.
On the Australian side, support is coming from commodities. Iron ore has recently held above $130 per tonne, a strong rebound from the 2025 lows. Hopes for more stimulus from Beijing—especially after last week’s weak inflation data—are also helping the Aussie. A strong Australian jobs report on Friday would add to this bullish view.
Given this outlook, we should consider buying March or April AUD/USD call options. A move toward, and potentially above, 0.7100 looks more likely. Strikes around that level may be attractive for capturing the expected upside. This approach keeps risk defined while targeting the upside suggested by current fundamentals.
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