Cross Currency Flows Driving Divergence
AUD’s wider performance has been weighed down by cross-currency flows, particularly in January. These flows have reduced the currency’s aggregate results compared with the AUD/USD pair. The report says AUD could rise if the RBA confirms current market pricing, even if expectations for US Federal Reserve easing continue to be removed from markets. It also notes that the piece was produced with the help of an AI tool and reviewed by an editor. With the Reserve Bank of Australia meeting tomorrow, March 17, 2026, we see them maintaining one of the most aggressive policy stances among major economies. Australian inflation has remained persistent, with the last quarterly reading from January showing a 3.8% annual rate, well above the RBA’s target. This makes it highly unlikely the central bank will signal a cut from its current 4.35% cash rate. Given this high interest rate, we find it surprising that a surge of capital isn’t flowing into the Australian dollar. This hesitation suggests traders are weighing the high yield against concerns over global economic conditions. We note that while AUD/USD saw some inflows last week, the broader trend has been muted.Positioning Ideas For Relative Value Trades
The real divergence we saw through 2025 was the underperformance of the AUD against other currencies compared to its relative stability against the US dollar. As markets now price out significant US Federal Reserve rate cuts for this year, the simple AUD/USD yield play has become less compelling. This could keep the pair rangebound even if the RBA remains hawkish. The opportunity for derivative traders is likely in positioning for AUD strength against the currencies of economies facing stagflation. For example, with late 2025 Eurozone GDP growth near zero and inflation still elevated, the European Central Bank may be forced to consider easing policy, making long AUD/EUR positions attractive. Options strategies that benefit from a rise in AUD/EUR could hedge against this divergence. We should also consider that Australia is well-positioned to benefit from a positive terms-of-trade shock. The recent rebound in iron ore prices back above $120 per tonne is a clear example of this fundamental strength. This commodity tailwind provides another reason to structure trades that favor AUD strength against the currencies of major commodity importers. Create your live VT Markets account and start trading now.
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