AUD/USD Bullish Reversal Analysis
By Kelvin Wong | 25 February 2026
Key Takeaways
- The Reserve Bank of Australia (RBA) is likely to maintain a hawkish stance as core CPI rose to 3.4% year-on-year in January, exceeding expectations.
- Market expectations are leaning towards another interest rate hike in May, reinforcing a tightening bias.
- The yield spread between Australia and the US favors AUD strength, with the Australian dollar being the best-performing major currency year-to-date, up 5.8% against the US dollar.
- AUD/USD has formed a bullish reversal at the 20-day moving average, with potential targets at 0.7140 and 0.7210.
Market Context
The RBA initiated a potential interest rate hike cycle by raising its cash policy rate by 25 basis points to 3.85% on February 3, 2026. This was the first rate hike since November 2023, driven by renewed cost pressures that emerged in the second half of 2025. The latest core CPI data for January, which recorded a 3.4% year-on-year increase, is the highest since September 2024 and remains above the RBA's inflation target of 2-3%.
Short-term interest rate futures indicate a further rate hike by the RBA in May, potentially raising the cash rate to 4.1%. The widening spread between the monthly implied future policy interest rate curves for Australia and the US has increased from 0.23% to 0.52% over the past three months, suggesting a bullish outlook for the Australian dollar.
Technical Analysis of AUD/USD
The AUD/USD pair has shown a minor bullish basing formation after retesting the 20-day moving average. The key resistance level is at 0.7110, and a breakout above this level could lead to further gains towards 0.7140, 0.7175, and 0.7210. Conversely, if the pair fails to hold above the key support level of 0.7020, it may lead to a corrective decline towards 0.6980 and 0.6907/0.6890.
Key elements supporting the bullish bias include:
- A minor bullish basing formation at the 20-day moving average.
- The hourly RSI momentum indicator has formed a "higher low" above the 50 level, indicating potential short-term bullish momentum.