AUD/USD fell about 1.15% on Wednesday, rejecting the 0.7100 area and settling near 0.7025 after briefly trading above 0.7120. The drop reinforced repeated failures to retake the year-to-date high near 0.7190 and erased the prior two sessions’ gains. The Federal Reserve held rates, while Jerome Powell said inflation progress has been slower than expected. The 2026 core inflation forecast rose to 2.7% from 2.5%, and US PPI increased 0.7% month-on-month versus 0.3%, with the annual rate at 3.4% versus 2.9%.

Fed And Rba Policy Divergence

The RBA lifted rates by 25 basis points to 4.10% in a 5–4 vote, citing capacity pressures and energy-price effects linked to the Middle East conflict. Australia’s February jobs data is expected at +20.3K with unemployment at 4.1%, alongside the RBA Financial Stability Review. AUD/USD was near 0.7022, with support at 0.7010, then 0.6960 and 0.6900. Resistance sits at 0.7075 and 0.7120, with 0.7150 and 0.7200 above. AUD drivers include RBA rates, China’s demand, inflation, growth, trade balance, risk sentiment, and iron ore, valued at about $118 billion a year in 2021. RBA targets inflation of 2–3% and can use quantitative easing or tightening. Looking back at the analysis from 2025, we can see the market was grappling with a hawkish Federal Reserve and a Reserve Bank of Australia that was still raising rates. The rejection of AUD/USD from the 0.7100 level at that time was a significant warning. Today, with the pair trading near 0.6550, those concerns from last year have clearly materialized and intensified.

Outlook And Trading Implications

The Fed’s forecast in 2025 for higher core inflation in 2026 proved accurate, with the latest data from February 2026 showing US core CPI remaining stubborn at 3.8% year-over-year. This has kept the US dollar strong, as rate cuts are pushed further out. Traders should view any strength in AUD/USD as an opportunity to initiate bearish positions, such as buying put options or establishing bear call spreads. In Australia, the situation has shifted since the RBA’s rate hike in early 2025. The February 2026 jobs report showed unemployment ticking up to 4.2%, and recent GDP figures indicate a significant economic slowdown. This policy divergence, with a still-hawkish Fed and a now-dovish-leaning RBA, puts sustained downward pressure on the Australian dollar. Furthermore, two key pillars of the Aussie dollar’s strength have weakened considerably since last year. Iron ore prices, a major Australian export, have fallen below $100 per tonne for the first time in months amid concerns over demand. China’s economic recovery remains sluggish, with its latest manufacturing PMI data still showing contraction at 49.1. Given this backdrop, we should anticipate that rallies will be limited and sold into. The 0.6900 level, which was viewed as potential support back in 2025, should now be considered a significant long-term resistance area. Strategies that profit from range-bound action or further downside, such as selling out-of-the-money call options, appear prudent in the coming weeks. Create your live VT Markets account and start trading now.

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