AUD/USD: The technical squeeze between 0.6980 and 0.7070

• Australia's annual CPI cooled slightly to 3.7% in February 2026, yet it remains above the RBA's target range.
• The AUD/USD pair is technically "coiled" within a tight trading range of 0.6980 and 0.7070.
• Near-term price direction will be dictated by US Dollar strength and geopolitical developments.
• Key levels to watch are a sustained bearish candle close below 0.6980 or a bullish breakout above 0.7070.

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AUD/USD continues to struggle below the psychological 0.7000 handle following softer than expected CPI data. Market participants still seem to be erring on the side of caution with more rate hikes still expected from the RBA moving forward.

Australia’s annual inflation rate showed signs of cooling in February 2026, dipping to 3.7%. This result was slightly lower than the 3.8% market forecast and the figures seen in the previous two months, though it remains stubbornly above the central bank’s 2–3% target range.

A significant driver of this slowdown was the easing of goods inflation, which dropped to 3.5% from 3.8% in January. This was largely fueled by a sharp decline in transport costs, particularly automotive fuel, which fell by 7.2%, a much steeper drop than the 2.7% decline recorded before the recent Middle East conflict. Other sectors contributing to the downward trend included:

• Alcohol and tobacco: Eased to 4.3%
• Education: Slowed to 4.8%
• Clothing: Eased to 4.9%
• Communication: Dropped to 0.8%

While several categories cooled, price growth remained persistent in other areas. Inflation for food and non-alcoholic beverages held steady at 3.1%, and financial services remained at 2.4%. Conversely, costs accelerated for recreation (4.0%) and housing, with the latter jumping to 7.3% from 6.8%. Services inflation remained unchanged at 3.9%.

On a monthly basis, the Consumer Price Index (CPI) remained flat, a notable shift from the 0.4% increase seen in January. Additionally, the trimmed mean CPI, a key measure of underlying inflation edged down to 3.3%, coming in below both the previous figure and market expectations of 3.4%.

These latest numbers arrive at a time when the Reserve Bank of Australia (RBA) has already pushed interest rates up to 4.10% to fight stubborn inflation.

The RBA is worried that current price hikes might lead to "second-round effects," such as a cycle where wages and prices keep pushing each other higher. Because inflation isn't dropping as fast as hoped, many experts now expect the bank to raise interest rates again in the near future.

This in part explains the lack of conviction by AUD/USD bears with the pair failing to find any sustainable downside push since breaching the 0.7000 handle.

Given the lack of high impact Australian data in the coming days, the US dollar and geopolitical developments will be the driving force behind any immediate moves.

The US Dollar has been supported by risk off sentiment since the start of the US-Iran war. News that diplomatic efforts are underway has boosted sentiment with rumors of talks between the two countries as early as Thursday.

If sentiment continues to improve and hopes of a ceasefire grows, the US Dollar could continue to lose steam and this in turn could send AUD/USD back above the 0.7000 level.

Based on the four-hour (4H) AUD/USD chart, the pair is currently caught between fundamental inflation concerns and a clear technical squeeze.

Current Price Action: The "Squeeze"

The chart shows AUD/USD trading within a descending triangle or a narrowing wedge pattern. After a sharp rejection from the 0.7130 area mid-month, the pair has been making lower highs, constrained by a descending trendline.

• Key Resistance Zone: There is a heavy "death cross" forming with the 50-period SMA (0.7038), 100-period SMA (0.7052), and 200-period SMA (0.7063) all hovering just above the current price. This creates a dense ceiling of resistance between 0.7040 and 0.7070.
• Psychological Support: The price is currently dancing around the 0.70000 psychological level. While it dipped toward 0.6940 recently, it has clawed back to the parity line, suggesting some dip-buying is occurring.
• RSI Neutrality: The RSI is sitting at approximately 45.50, which is neutral. It isn't oversold yet, meaning there is room for a move in either direction once the pattern breaks.

AUD/USD Four-Hour Chart, March 25, 2026

1. The Bearish Case (Breakdown)

If the RBA's 4.10% rate and the persistent 3.7% inflation data cause markets to fear a "hard landing" (economic slowdown), we could see a break below the recent support.

• Trigger: A sustained candle close below 0.6980.
• Targets: The first major target would be the recent swing low near 0.6940, followed by the long-term horizontal support at 0.6913.

2. The Bullish Case (Breakout)

If the market interprets the slight dip in inflation (3.7% vs 3.8%) as a sign that the RBA's hikes are finally working or if the RBA signals an aggressive hike to 4.35%, the Aussie could catch a bid.

• Trigger: A break and hold above the descending trendline and the cluster of SMAs (specifically above 0.7070).
• Targets: A successful breakout would likely see a quick move toward 0.7080, with a medium-term goal of retesting the March high at 0.7130.

Bottom Line: AUD/USD is coiled tightly. Until it breaks out of the 0.6980 – 0.7070 range, expect "choppy" sideways movement as the market digests the latest inflation data.

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