- Technical signs, including upper wicks and an overbought RSI, point to potential fatigue for AUD/USD.
- The long-term bullish outlook remains due to policy divergence but does not rule out a short-term correction.
- Significant volatility is expected from the upcoming RBA and Federal Reserve meeting minutes, as well as high-impact data releases from both Australia and the US.
AUD/USD has been on a tear since January 19, rallying some 500 odd pips since. The move has coincided with US dollar weakness and a renewed appetite for emerging markets and commodity linked currencies like the Australian dollar.
The current rally appears to have found a top around the 0.7150 handle before ending last week with two bearish days. This has raised the question, is a deeper correction on its way for AUD/USD?
Fundamental outlook – Central Bank policy divergence
The longer term fundamental picture still supports further Aussie dollar gains as central bank policy divergence comes into play.
The RBA has raised rates at its recent meeting with the potential for more rate hikes, while the Federal Reserve continues to eye rate cuts at some point this year.
However, in the short-term a pullback still may materialize and looking at the recent price action, there do appear to be signs to support this narrative.
Just looking at implied rates for the Fed and the RBA, and the divergence is evident. According to LSEG data, markets are pricing in around 37 bps of rate hikes for the RBA through December 2026.
RBA implied rates for 2026
Source LSEG
Now switching to the Federal Reserve and markets are pricing in around 66 bps of rate cuts after last week’s softer than expected CPI print. This leaves the Aussie dollar in pole position for more gains as the year progresses.
Federal Reserve implied rates for 2026
Source: LSEG
Technical Analysis – AUD/USD
From a technical point of view, the best place to start is the weekly chart.
On a weekly timeframe we have seen upper wicks which may be a sign that bullish momentum is fading.
If you couple that with the period-14 RSI which is in overbought territory.
Are these signs of fatigue?
AUD/USD Weekly Chart, February 16, 2026
Source:TradingView.com
Dropping down to a four-hour timeframe, and support at 0.70690 is key.
A break of this level though still faces significant hurdles with the 50 and 100-day MAs resting just below at 0.7054 and 0.7011 respectively.
A break of these levels as well as the 0.7000 handle could open up a deeper retracement toward the 0.6913 and potentially the 200-day MA at 0.6861.
This would be considered the safety play for market participants.
The more aggressive traders may look at any move higher toward the recent highs as a potential trade opportunity.
Stops would need to go just above the recent highs with a bit of breathing room in the event of any spikes, around the 0.7170 handle.
Such a move will present a better risk-to-reward opportunity but is also a higher risk trade setup.
AUD/USD Four-Hour Chart, February 16, 2026
Source:TradingView.com
Client sentiment data – AUD/USD
Looking at OANDA client sentiment data and market participants are short on AUD/USD with 59% of traders net-short. I prefer to take a contrarian view toward crowd sentiment and thus the fact that so many traders are short means AUD/USD could rise in the near-term before a potential selloff.
Looking ahead at potential catalysts for AUD/USD
This week will bring both the RBA and Federal Reserve meeting minutes which will shed further light on the monetary policy positions moving forward. These events culd stoke significant volatility in AUD/USD.
From a data perspective, we will also get the Australian employment change data. The US has a few high impact data releases ahead with PCE, GDP and PMI data all ahead before the end of the week.
For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (click to enlarge)
