Australian Inflation Expectations And Rba Policy
In Australia, consumer inflation expectations rose to 5.2% in March from 5% in February, the highest level since July 2023, according to the Melbourne Institute. The RBA lifted rates by 25 basis points in early February, taking the Official Cash Rate to 3.85%. Australia has no major data due on Friday. The US will publish the January PCE Price Index, January Durable Goods Orders, and a preliminary March Michigan Consumer Sentiment Index. On the 4-hour chart, price moved below the 20-period SMA near 0.7120 and tested the 100-period SMA around 0.7075, while holding above the 200-period SMA near 0.7050. The RSI dropped from above 60 to the mid-40s and Momentum turned negative. On the 1-hour chart, the pair stayed below the 20- and 100-period SMAs, with the 200-period SMA near 0.7068. Resistance sits at 0.7115–0.7120 then 0.7150, while support is at 0.7075 and 0.7000. We recall how this exact situation played out around this time in March 2025, when conflict in the Middle East sent oil prices soaring and pushed AUD/USD down from its peak. That sharp increase in volatility rewarded traders who used derivatives to bet on a stronger US Dollar. The flight to safety was a clear and profitable trend for those positioned correctly.Policy Divergence And Options Positioning
Since that shock last year, the RBA did indeed hike rates further to 4.35% to combat the inflation wave but has been on hold for the last five months. Australian inflation has now cooled significantly from the 5.2% expectation seen in March 2025, with the latest quarterly CPI data for December 2025 showing a drop to 3.4%. This has taken the pressure off the RBA to continue its hiking cycle. The story now is more about policy divergence, as US core PCE inflation remains sticky at 2.9% as of January 2026, which is preventing the Federal Reserve from considering rate cuts. This has helped keep the US Dollar strong and has been a primary reason the AUD/USD has drifted down to the 0.6800-0.6850 range we see today. The market is pricing in fewer rate cuts from the Fed this year than was expected just a few months ago. In the coming weeks, we see limited upside for the Australian dollar, suggesting that selling call options could be a prudent strategy. For instance, selling AUD/USD call options with a strike price around 0.6950 allows traders to collect premium while betting that the pair will not break out to the upside. This strategy capitalizes on the current market sentiment and the ongoing strength of the US dollar. We must also watch for any sudden spikes in volatility, especially with WTI crude oil prices creeping back up towards $88 a barrel on fresh OPEC+ supply cut announcements. To protect against a sudden downturn, buying short-term put options with a strike price near 0.6750 can serve as a cheap hedge. This provides a safety net if geopolitical risks flare up again, mirroring the events of last year. Create your live VT Markets account and start trading now.
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