Key takeaways
- RBA may maintain hawkish stance: Australia’s core CPI rose to 3.4% y/y in January, above expectations. Markets are now pricing another hike in May, reinforcing a tightening bias.
- Yield spread favours AUD strength: The Australia–US short-term rate spread has widened sharply, supporting further AUD appreciation. The Aussie is already the best-performing major currency YTD, up 5.8% against the US dollar.
- Bullish technical setup intact: AUD/USD has formed a minor bullish base at the 20-day moving average. A break above 0.7110 opens room toward 0.7140–0.7210, while 0.7020 remains key support.
The RBA, Australia’s central bank, was the first developed nation central bank (other than the Bank of Japan) to kickstart a potential interest rate hike cycle, raising its cash policy rate by 25 basis points to 3.85% on 3 February 2026.
The decision marked the first-rate hike since November 2023, underscoring renewed cost pressures that intensified in H2 2025. Today’s hotter-than-expected core CPI data for January, which recorded a 3.4% year-on-year rise versus 3.3% y/y consensus and above December 2025’s print of 3.3%, is likely to strengthen the hawkish vibes in the RBA.
The latest 3.4% y/y print in Australia’s core CPI is the highest since September 2024 and continued to stay “stubbornly” above RBA’s inflation target band of 2-3%.
Short-term interest rate futures in Australia have started to price in a further rate hike by the RBA in May to increase the cash rate to 4.1%.
Monthly implied future policy interest rate curves spread suggest a hawkish RBA
Fig. 1: AU/US monthly implied future policy interest rate curves spread as of 25 Feb 2026 (Source: MacroMicro)
In addition, the spread between the monthly implied future policy interest rate curves for Australia and the US (derived from short-term interest rate futures) has risen steadily and shifted upwards (see Fig. 1).
The spread for May 2026 is now at 0.52%, a widening of 29 bps from 0.23% recorded three months ago. The current upward trajectory of Australia’s short-term interest rate premium over the United States’ short-term interest rates is likely to support a further strengthening of the Australian dollar against the greenback, which has a year-to-date positive return of 5.8% as of 25 February 2026 at the time of writing, the best-performing major currency against the US dollar.
Let us now focus on the short-term (1 to 3 days) technical trend and key levels to watch on the AUD/USD.
AUD/USD – Minor bullish basing has formed after a retest on the 20-day MA
Fig. 2: AUD/USD minor trend as of 25 Feb 2026 (Source: TradingView)
The recent retest on the 20-day moving average on 20 February and 24 February has formed a potential minor bullish basing formation for the AUD/USD, with its neckline resistance at 0.7110 (see Fig. 2).
Bullish bias with 0.7035/0.7020 key short-term pivotal support on the AUD/USD. A clearance above 0.7110 sees the next intermediate resistances coming in at 0.7140, 0.7175, and 0.7210.
On the flip side, failure to hold at 0.7020 and an hourly close below it negates the bullish tone to see another round of minor corrective decline sequence unfolding to expose the next intermediate supports at 0.6980 and 0.6907/0.6890.
Key elements to support the bullish bias on AUD/USD
- Minor bullish basing formation at the 20-day moving average.
- The hourly RSI momentum indicator of the AUD/USD has shaped a “higher low” above the 50 level, which suggests a potential resurgence of short-term bullish momentum.
 to kickstart a potential interest rate hike cycle, raising its cash policy rate by 25 basis points to 3.85% on 3 February 2026.){kind=link}