Oil Prices And Inflation Pressure
WTI oil traded at $87.57 a barrel, up nearly 5%, after reversing earlier moves. The International Energy Agency recommended tapping 400 million barrels, and Lloyd’s of London said ships in the Strait of Hormuz will be insured. Bank of America, Goldman Sachs, Westpac and National Australia Bank expect an RBA rate rise next week. RBA Deputy Governor Andrew Hauser said there would be a “genuine” debate at the meeting and that “inflation is too high”. US February inflation matched forecasts, with CPI at 2.4% year on year and core CPI at 2.5% year on year. Upcoming releases include Australian Consumer Inflation Expectations and US jobless claims, housing data and the balance of trade. AUD/USD support levels were noted near 0.7120, 0.7050 and 0.7000, with resistance near 0.7200 and 0.7275. A move below 0.7050 was described as a risk to the upward bias.Trade Strategy And Risk Management
Based on the strengthening RBA hike bets, we see a clear opportunity in the AUD/USD. The swaps market, as of early March 2025, is now pricing in an over 80% probability of a 25-basis-point hike at next week’s meeting. This strong expectation should continue to support the Australian dollar. Geopolitical tensions in the Middle East are a key catalyst, pushing WTI crude prices up nearly 15% since the beginning of February 2025. This oil shock directly fuels concerns about imported inflation in Australia, adding significant pressure on the RBA to act. We believe the market is correctly interpreting this as a hawkish signal for the central bank. Meanwhile, the US February CPI data appears outdated as it does not capture the recent spike in energy costs. While US inflation held at 2.4%, we anticipate future reports will reflect higher prices, but the immediate narrative favors AUD strength. This divergence in real-time inflation pressures gives the Aussie a temporary advantage. Given this outlook, we are positioning for further upside by buying AUD/USD call options with strike prices near the 0.7200 level. These positions allow us to profit from a continued rally toward the 0.7275 resistance over the next several weeks. The current positive momentum, confirmed by the technicals, supports initiating these bullish trades. To manage risk, we are considering bull call spreads to cap potential losses if the RBA delivers a surprise hold. A daily close below the 0.7120 support would be our first signal to reduce exposure. Any deeper break below 0.7050 would invalidate the immediate bullish thesis and prompt us to exit the position. Create your live VT Markets account and start trading now.
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