Us Data And Fed Outlook
Later on Monday, the US March ISM Services PMI is due. Stronger US data has raised expectations that the Federal Reserve will keep rates higher for longer, which can support the US Dollar. The US added 178,000 jobs in March. This followed a 133,000 fall previously, revised from -92,000, and beat the 60,000 gain forecast. The Unemployment Rate eased to 4.3% in March. The report noted this was largely linked to a sharp fall in the labour force. In Australia, the RBA lifted the Official Cash Rate to 4.10% at its March meeting to address sticky inflation. Markets lean towards another potential hike in May, and Westpac expects three more hikes in 2026, taking the cash rate to 4.85%, last seen in November 2008.Looking Back And Current Market
Looking back at the analysis from around this time in 2025, we saw the AUD/USD pair hovering near 0.6910, driven by geopolitical hopes and central bank speculation. Today, the pair is trading much firmer around 0.7150, largely because the Reserve Bank of Australia followed through on its hawkish stance. This divergence between the central banks is now the key theme for derivative traders. The RBA did indeed deliver the rate hikes we anticipated, with the cash rate now sitting at the 4.85% level that analysts at Westpac predicted back in 2025. Australian inflation remains persistent, with the latest Q1 2026 CPI figures coming in at 3.9%, reinforcing the market’s belief that rate cuts are not on the immediate horizon. This provides a strong fundamental support for the Australian dollar. Conversely, the situation in the US has shifted from what we observed in 2025. While the US jobs market remains stable, with the most recent March 2026 report showing a gain of 190,000 jobs, inflation has cooled considerably. The latest US CPI reading for March 2026 was just 2.8%, prompting markets to price in at least one Fed rate cut by the end of the year. This clear policy divergence suggests continued strength for the AUD/USD pair in the coming weeks. Traders might consider buying call options to capitalize on further upside, targeting strikes around the 0.7250 to 0.7300 area for the June expiry. Given the RBA’s firm stance, selling out-of-the-money puts to collect premium could also be a viable strategy, as the 0.7000 level appears to be a solid floor for the currency. While the ceasefire talks mentioned in 2025 did lead to a fragile agreement, underlying geopolitical tensions still create risks of sudden market moves. Implied volatility for AUD/USD options is currently elevated at around 11% for 3-month contracts, reflecting this uncertainty. This environment could make strategies like call spreads attractive, as they limit the upfront cost while still offering exposure to a rise in the Aussie dollar. Create your live VT Markets account and start trading now.
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