Australian Dollar Forecast: AUD/USD Tests 0.7185 Resistance as RBA Hike Bets Surge to 75%

The AUD/USD pair is still managing a pretty remarkable show of resilience – sitting somewhere in the 0.712 to 0.715 range, as a pretty decisive rally has pushed the pair to its highest levels since June of last year. This strongly bullish momentum has seen the pair burst through its prior resistance level of 0.7140 and rise to new heights.

The main driver behind this surge is a huge shift in market expectations for the Reserve Bank of Australia with traders now pricing in a 75% probability of a rate hike to 4.10% at the RBA’s next meeting on March 17.

This hawkish outlook has been reinforced somewhat by a warning from RBA Deputy Governor Andrew Hauser that as long as oil prices keep rising, we might see a spike in inflation – with headline CPI possibly going over the 4% mark.

AUD/USD Price Prediction: Will we see that 0.7096 gap fill before we shoot up to 0.7200?

Technically the pair is currently just going through a bit of a routine pull back after a strong rejection at the 0.7182 swing high. Many of the pro traders I know are viewing this minor pull back to the 0.7129 level as just a healthy breather after all the excitement of the recent rally.

A key area that bulls are keeping a close eye on is that 0.7096 to 0.7069 zone – which just so happens to be where that significant Fair Value Gap is located and lines up with a 0.382 Fibonacci retracement level.

As long as the pair stays above the 0.7068 support level – it’s still basically business as usual for bulls with the chance of some pretty serious upside targets up towards 0.7222 major resistance on the cards.

Policy Divergence and Geopolitical “Safe-Haven” Dynamics

Fundamentally the Australian Dollar is still very much anchored in that stark policy divergence between the RBA and the Federal Reserve. While the Fed is facing some pretty cool labour market signals, the RBA is wrestling with an economy that’s growing at a pretty hot 2.6% y/y and with limited spare capacity – which has seen AU-US yield spreads get pretty large for the first time since 2022.

The ongoing tensions in the Middle East have added another layer of complexity – with the US-Israel-Iran conflict still sending shockwaves through the energy markets.

What normally sees safe-haven flows go towards the US Dollar has actually seen the Australian Dollar show a bit of uniqueness – thanks to its status as a major energy exporter during global oil shocks.

Key Market Drivers and Trade Strategy for the Not So Distant Future

Market participants are now keeping a very close eye on what’s coming up – including that US inflation data and the two pivotal Fed and RBA decisions that are scheduled for next week.

The broad consensus for the future remains pretty bullish with some major institutions tipping a year-end range between 0.7300 and 0.7500 if the RBA does indeed go through with its tightening cycle.

• RBA Meeting (March 17): This is the single most important trigger for bulls – a 25bps hike could see the trend accelerate towards 0.7200
• Support Line: The 0.7068 level is basically the ” line in the sand” – if bulls can hold onto it then the current uptrend is still alive and well
• USD Strength: Any change in the Middle East situation that weakens the US Dollar’s safe-haven bid could actually fuel the AUD rally further.

Trade Idea: Keep an eye out for long entries on a successful retest of the 0.7096 Fair Value Gap – targeting 0.7182 and 0.7222 with a good protective stop-loss placed below 0.7042.