Key Points:
AUD was the top-performing major currency last week, driven by a surprise hawkish 25bp rate hike from the RBA.
AUD/USD broke and held above 0.70 for the first time in two years, showing strength even against a broader USD rebound.
Technical outlook is bullish but overextended; weekly charts show overbought signals and waning momentum.
Options markets are flashing a warning: Rising demand for downside protection (puts) indicates growing caution and event risk.
All eyes are on key US data (CPI, Retail Sales, NFP) this week. Strong results could revive the USD and pressure AUD/USD.
RBA signals more tightening ahead, with forecasts pointing to a potential 4.2% cash rate, supporting AUD's yield appeal.
Positioning shows large speculators are net-long AUD at a 13-month high, with gross longs at a 13-year peak—a potential sentiment extreme.
In a nutshell: The Australian dollar is riding high on interest rate dominance, but its rally is becoming fragile. The stage is set for a pivotal clash between RBA hawkishness and upcoming US economic data, which will determine if AUD/USD can break higher or finally pull back.
