AUD/USD traded near 0.7150 on Wednesday, up 0.42% on the day, extending gains for a fourth straight session. The Australian Dollar was supported by expectations of tighter policy from the Reserve Bank of Australia (RBA). Markets priced in nearly a 75% chance of a 25 basis point RBA rate rise next week, which would take the policy rate to 4.1%, according to Reuters. RBA Deputy Governor Andrew Hauser said oil price moves and Middle East tensions pose a challenge for central banks, with the size and duration of the energy-led inflation shock still uncertain.

Us Inflation And Fed Outlook

In the United States, inflation data did not materially alter rate expectations. The BLS said CPI was unchanged at 2.4% year-on-year in February, with monthly CPI rising to 0.3% from 0.2% in January, while core inflation increased 0.2% month-on-month and 2.5% year-on-year. Markets still expect the Federal Reserve to keep rates unchanged at its next meeting. Geopolitical risks continued, with the US–Iran conflict in its twelfth day and concern around the Strait of Hormuz, a key route for global oil shipments. Looking back to early 2025, we saw the Australian dollar showing strength around 0.7150, fueled by expectations that the Reserve Bank of Australia was about to hike rates. The situation has clearly evolved, with the pair now trading significantly lower near 0.6580 as of today, March 11, 2026. This shift reflects a major change in central bank outlooks over the past year. The expected RBA rate hike did materialize in March 2025, but the tightening cycle was short-lived as global growth concerns emerged later that year. The cash rate now stands at 3.85%, and with the latest quarterly inflation figures from January showing a decline to 3.4%, markets are no longer pricing in further hikes. This has removed a key pillar of support for the Aussie dollar that we saw last year.

Market Implications And Trading Considerations

In the United States, the inflation picture we observed in 2025 proved to be stubborn, keeping the Federal Reserve on hold for longer than many anticipated. However, last month’s data for February 2026 showed headline CPI easing to 2.8%, a welcome sign of cooling price pressures. Consequently, derivative markets are now pricing in a greater than 60% chance of a first Fed rate cut by the third quarter of this year. The geopolitical tensions in the Middle East that concerned us in early 2025 have since eased, reducing the risk premium in energy markets. West Texas Intermediate (WTI) crude oil, which flirted with $95 a barrel during the conflict, has stabilized and is currently trading near $78 a barrel. This has helped moderate the global inflation pressures that the RBA deputy governor had warned about. This divergence in monetary policy, with the Fed signaling future easing while the RBA remains neutral, suggests a path of least resistance for AUD/USD may be lower in the coming weeks. Traders might consider positioning for this through options, such as buying puts on the AUD/USD to hedge or speculate on further downside. The reduced volatility from calmer oil markets could also make the cost of such options more attractive than it was a year ago. Create your live VT Markets account and start trading now.

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