AUD/USD rose to about 0.7090 in Asian trading on Friday after falling by more than 1% in the prior session. The move came as markets focused on expectations of tighter Reserve Bank of Australia policy. A Reuters poll showed 23 of 30 economists expect the RBA to lift the Official Cash Rate to 4.10% on March 17, while seven expect no change. This differs from February’s poll, which pointed to the rate staying at 3.85%.

Rate Expectations And Market Pricing

The poll’s median forecast now sees the cash rate at 4.35% by the end of 2026. Markets are pricing a 70% chance of a 25-basis-point rise next week in cash rate futures. ING’s Francesco Pesole described the Australian Dollar as one of the best-performing G10 currencies, helped by expectations of further RBA tightening and higher oil prices. He said the pair could move towards 0.7200 if equity markets stay stable, while stretched positioning could raise the risk of a pullback after the decision. Traders are also awaiting US inflation data, with January’s Personal Consumption Expenditures Price Index due later on Friday. Other scheduled releases include the first revision to fourth-quarter GDP growth and March consumer confidence. We are looking back at the sentiment from early 2025, when expectations for aggressive Reserve Bank of Australia rate hikes were running high and the AUD/USD was trading near 0.7100. At the time, markets were pricing a high probability of a rate hike in the upcoming March 2025 meeting. That hawkishness was driven by a belief that the RBA needed to move rates significantly higher to control inflation.

How The Outlook Shifted Into 2026

Following that period, the RBA did indeed hike in March 2025, but only by 25 basis points to 3.60%, disappointing the more aggressive forecasts. The Australian dollar actually weakened over the subsequent months as the US Federal Reserve continued its own hiking cycle more assertively. By the end of 2025, we saw the RBA cash rate reach 4.35% while the Fed Funds Rate stood higher at a peak of 5.50%. Now, in March 2026, the situation is very different as both central banks have been on a prolonged pause for several months. With Australia’s last quarterly inflation report for 2025 coming in at an annual rate of 4.1% and the latest US inflation figures still hovering over 3%, expectations for imminent rate cuts have been pushed out. This has created a period of lower volatility in the currency pair, with AUD/USD trading in a tighter range around the 0.6650 level. For traders, this suggests that strategies profiting from range-bound price action are now more attractive. Selling short-dated strangles, an options strategy that profits if the AUD/USD stays between two set prices, could be effective in the current environment. The market is no longer pricing in major policy surprises from either the RBA or the Fed in the immediate future. However, we must remain aware of external factors that could disrupt this stability. Iron ore prices, a key Australian export, have softened in early 2026, recently falling from over $130 to around $115 per tonne. A further decline in commodity prices could pressure the Australian dollar downwards, even if interest rate expectations remain stable. Create your live VT Markets account and start trading now.

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