AUD/USD pulled back after the Reserve Bank of Australia raised its cash rate target by 25bp to 4.35% and signalled a pause. The pair is drifting below 0.7150 after earlier moving back above its 50-day moving average, with direction linked to risk sentiment and incoming data.
The RBA’s December 2026 rate projection is 4.7%, up from 4.2% in February, and it remains at 4.7% through 2027 and 1H-28. Core inflation is projected to peak at 3.8% in 2Q, then ease to 3.1% by end-2026, 2.6% in 2027, and 2.5% in 1H-28.
Rates Inflation And Market Pricing
Headline CPI is projected to fall from 4.0% in Dec-26 to 2.4% by mid-2027. Market pricing shifted after the Governor’s comments, with changes seen at the front end and in the 2s/10s curve, while a June pause was described as likely.
Technically, AUD/USD formed an interim high near 0.7225 after reclaiming its 50-DMA in April. The 50-DMA area near 0.7060 is a key support, while 0.7225 is an upper level to watch.
Looking back to this time in 2025, we recall the market digesting a Reserve Bank of Australia pause after lifting the cash rate to 4.35%. The prevailing view was that the central bank was keeping its options open for at least one more hike. At that point, the currency was consolidating between critical support near 0.7060 and resistance at 0.7225.
Those upside inflation risks we noted in 2025 did crystallize, forcing the RBA to be more aggressive than initially anticipated. With the official cash rate now standing at 4.60% since the November 2025 meeting, the recent Q1 2026 inflation data came in at a persistent 3.6%. This is still well above the RBA’s 2-3% target band, suggesting the tightening cycle may not be over.
That period of consolidation ultimately resolved to the downside, with the pair breaking below the key 0.7060 support level late last year. The anticipated upward momentum never materialized, in part due to a strengthening US dollar following hawkish Federal Reserve commentary. We are now seeing the AUD/USD struggle to hold ground above 0.6550.
Trade Setups And Risk Management
Given the RBA’s firm stance and external pressure from the strong US dollar, traders should now consider strategies that benefit from range-bound price action or further weakness. Selling out-of-the-money call options above 0.6700 could be a viable strategy to collect premium, assuming that level acts as a new firm ceiling. For those anticipating another RBA hike, bear put spreads could offer a defined-risk way to position for a drop towards the 0.6400 area.
