AUD/USD Major Reversal: Australian Wealth Surge Masks Economic Weakness, Stagflation Risk Approaching! 2026-3-27 Technical Analysis

(Source: Optivest)

Fundamental Summary:

1. An Australian central bank official warns that the ongoing Middle East conflict will exacerbate economic losses and shake inflation expectations.

A senior official of the Reserve Bank of Australia warned on Thursday that the longer the Middle East conflict continues, the greater the losses to the economy, and policymakers must ensure that surging energy prices do not undermine inflation expectations.

Christopher Kent, Assistant Governor of the Reserve Bank of Australia, stated in a speech in Sydney that the situation in the Middle East has tightened financial conditions, while supply shocks have further increased inflation risks. He pointed out that while the central bank cannot change this situation, it can ensure that initial price increases do not evolve into a rise in long-term inflation expectations and sustained inflationary pressures.

Current inflation levels in Australia remain high. Even before the Iran conflict disrupted global oil trade and drove domestic gasoline prices to historic highs, the Reserve Bank of Australia had already raised rates twice this month, bringing them to 4.1%. This tightening reversed two of last year’s three rate cuts, but Kent did not clarify whether current monetary policy is restrictive.

Kent stated that due to the downward adjustment of the cash rate target for 2025 and further upward adjustments in various models of the neutral rate, related assessments have become less clear. Models that are closer to the short-term neutral rate have raised rate expectations by about 20 to 30 basis points in recent quarters.

The central bank believes that the peak cash rate of 4.35% post-pandemic is too restrictive and is now working to slow demand growth through policy adjustments.

2. Initial jobless claims in the U.S. show a slight increase, with the labor market remaining stable, but the Middle East conflict and trade policies pose inflation risks.

Last week, the number of initial jobless claims in the U.S. rose slightly, indicating that the labor market remains stable, which may provide room for the Federal Reserve to maintain interest rates while closely monitoring inflation risks that could arise from the Middle East conflict.

A report released by the Labor Department on Thursday showed that the number of people receiving unemployment benefits fell to its lowest level in nearly two years by mid-March. However, this decline partly reflects that some unemployed individuals have exhausted their eligibility—unemployment benefits typically last only 26 weeks in most states.

The current job market is in what economists term a “low hiring, low firing” state. Carl Weinberg, chief economist at High Frequency Economics, stated that businesses need time to understand the impact of the Middle East conflict on the economy and to decide to begin layoffs. “We are confident that the situation will worsen, but it has not yet begun to deteriorate.”

For the week ending March 21, the seasonally adjusted number of initial jobless claims increased by 5,000 to 210,000, in line with the 210,000 expected by economists surveyed by Reuters. This year, initial jobless claims have remained between 201,000 and 230,000, as the number of layoffs has stayed low.

Economists point out that the continued uncertainty stemming from the Trump administration’s tough import tariff policies has weakened labor demand, with nonfarm payrolls in the private sector showing an average increase of only 18,000 jobs per month over the three months ending in February. Meanwhile, tightening immigration policies have also reduced labor supply, putting pressure on job growth. This situation has created what Federal Reserve Chairman Jerome Powell this month described as a “zero job growth equilibrium,” with a “downside risk feeling.”

The turmoil in the Middle East has raised market concerns about rising inflation. Since the outbreak of war at the end of February, oil prices have risen by more than 30%. Import and producer prices surged in February, and economists expect that this conflict, which also drives up fertilizer prices, will be reflected in March’s consumer inflation data. As the conflict continues, market expectations for inflation this year are also being adjusted upward.

In this context, the U.S. central bank maintained its benchmark interest rate within a range of 3.50%-3.75% this month, and the latest forecast accompanying this decision indicates that Federal Reserve policymakers expect only one rate cut this year. Financial markets generally view the likelihood of rate cuts as decreasing.

The jobless claims report also showed that for the week ending March 14, the number of people continuing to claim unemployment benefits decreased by 32,000, seasonally adjusted to 1.819 million, the lowest level since May 2024. This data can serve as a reference indicator for hiring conditions and covers the period during which the government conducted its March unemployment rate survey. The number of continuing claims for unemployment benefits declined between the February and March survey weeks.

Economists have differing views on how this data might impact the unemployment rate in March; some predict a decrease, while others anticipate an increase. They note that this data does not cover young individuals who are unemployed and struggling to find work, a group that typically does not qualify for benefits due to limited or no work experience.

The Chicago Fed predicts an unemployment rate of 4.46% this month, rounded to 4.5%. The unemployment rate rose from 4.3% in January to 4.4% in February.

Oliver Allen, a senior economist at Pantheon Macroeconomics, stated: “The monthly correlation between jobless claims and the unemployment rate is relatively weak, partly due to fluctuations in the household survey in the employment report, and also because only about a quarter of unemployed individuals are eligible for benefits, with long-term unemployed individuals and newcomers to the labor market typically excluded.”

3. A survey shows economists expect the Federal Reserve to keep interest rates unchanged until September, with at least one rate cut this year.

A Reuters survey revealed that despite concerns about inflation potentially triggered by the Middle East war, economists generally expect the Federal Reserve to maintain interest rates unchanged until September and believe there will be at least one rate cut later this year.

Currently, financial markets have completely ruled out the possibility of a rate cut this year. As the conflict between Israel and Iran enters its fourth week, crude oil prices have risen more than 40%, with market expectations for a rate hike rising nearly 30%. However, economists believe that even before the outbreak of war, inflation rates were already about one percentage point above the Federal Reserve’s 2% target, and the spillover effects of this round of energy shocks will be more limited and shorter-lived.

Last week, the Federal Reserve kept its benchmark interest rate at 3.50%-3.75%. Since then, several Federal Reserve officials have indicated that high inflation risks remain a top priority, suggesting that the likelihood of a rate cut soon is low.

The survey conducted by Reuters from March 20 to 25 showed that among 82 economists, 61 (nearly three-quarters) expect the Federal Reserve to keep rates unchanged in the next quarter. Just two weeks ago, about two-thirds of economists expected the Federal Reserve to cut rates to the range of 3.25%-3.50% by the end of June. More than two-thirds of respondents (55) believe there will be no rate cuts before at least September this year.

Jonathan Miller, a senior U.S. economist at Barclays, stated: “The Federal Reserve needs more time to be confident that inflation is returning to a path consistent with its 2% target. We believe this will not happen until September. The Federal Reserve is fully capable of waiting for oil prices to fall and delaying rate cuts until next year.” He added that the financial environment has effectively tightened even without an adjustment to the federal funds rate.

Economists have differing views on the direction of rates by the end of 2026, but they broadly center around predicting one rate cut (28 economists) or two rate cuts (37 economists) this year. Thirteen institutions expect no changes in rates this year, while four predict three rate cuts. The latest median forecast from the Federal Open Market Committee’s dot plot also indicates one rate cut this year.

Among the 75 economists who participated in both the latest survey and the pre-policy meeting survey conducted from March 17 to 18, 45% (34 economists) have pushed back their rate cut expectations, with just over half of the respondents maintaining their original forecasts.

U.S. President Trump has nominated Kevin Warsh to be the next chairman of the Federal Reserve and has repeatedly criticized current chairman Jerome Powell for not cutting rates quickly enough. Jan Hatzius, chief U.S. economist at Goldman Sachs, stated: “Any new chairman requesting significant rate cuts upon taking office will find it difficult to reach a consensus at least this year. All factors related to the Iranian war and its impact on the oil market have intensified inflation fears.”

In recent weeks, economists have significantly raised inflation expectations, particularly for overall price indicators. The Federal Reserve’s preferred inflation measure—the personal consumption expenditures index—is expected to grow at annualized rates of 3.3%, 3.1%, and 2.9% in the second, third, and fourth quarters, respectively, about 50 basis points higher than forecasts made two weeks ago, and above the Federal Reserve’s latest official predictions.

On March 27 (Friday), there will be no significant data released from Australia, and the market’s focus will be on the U.S. University of Michigan Consumer Sentiment Index final value for March, which is scheduled to be released at 10:00 PM.

Economic Insights

According to multiple economic data and analyses released on March 26, the current economic situation in Australia presents a complex landscape. Driven by strong increases in the housing market, total household wealth is expected to see significant growth in the fourth quarter of 2025.

Data from the Australian Bureau of Statistics shows that total household wealth grew by 2.5% in the December quarter, amounting to AUD 453.7 billion. Of this, the increase in residential land and housing values contributed 3.2% (AUD 368.6 billion) to overall wealth growth. Pension assets contributed 0.3 percentage points. Dr. Mish Tan, the head of financial statistics at the bureau, pointed out that the average price increases in Western Australia, Queensland, and South Australia have been particularly notable, serving as the main drivers of wealth growth. Meanwhile, household borrowing grew by 2%, slightly offsetting the overall wealth increase.

In terms of macroeconomic outlook, Adelaide Timbrell, senior economist at ANZ Bank, warned that the economic outlook has deteriorated due to domestic inflationary pressures, the Middle East conflict, and tightening monetary policy. She expects the Reserve Bank will cut rates by a cumulative 75 basis points by 2025, followed by a 75 basis point increase in 2026, of which 50 basis points have already been implemented, with the remaining 25 basis points expected to be completed in May, effectively reversing the easing cycle. Inflation is expected to peak at 4.9% year-on-year in the second quarter of 2026 and then gradually ease in the second half of the year due to slowing consumer spending, a stronger Australian dollar, and falling oil prices. The trimmed mean inflation is expected to return to the Reserve Bank’s target range by the second quarter of 2027. Economic growth for 2026 is projected to be only 1.3%, with a slight rebound to 1.8% in 2027, primarily due to slowing consumption and business investment.

Regarding monetary policy, Christopher Kent, Assistant Governor of the Reserve Bank of Australia, stated on Thursday in Sydney that the ongoing conflict in the Middle East is putting pressure on financial conditions and poses inflation risks. He noted that while the central bank cannot change the supply-side shocks, it must prevent initial price increases from evolving into long-term inflation expectations. This month, the Reserve Bank has raised rates for the second consecutive time to 4.1%, reversing some of last year’s easing measures. Kent indicated that due to the previous downward adjustments in cash rates and upward adjustments in neutral rate assessments, it is unclear whether current policy is restrictive. Some short-term neutral rate models have raised expectations by about 20 to 30 basis points in recent quarters, complicating policy assessments.

Political Insights

In the area of energy security, Prime Minister Anthony Albanese will hold the second emergency national cabinet meeting next week to address the ongoing fuel crisis caused by the Middle East war. Approximately 470 gas stations nationwide are experiencing shortages of at least one type of fuel, with rising prices threatening basic services such as freight and garbage collection. The government has appointed Ancia Harris as the coordinator of the fuel supply working group and arranged for six oil tankers to replace canceled orders, with an additional three added. Although Energy Minister Chris Bowen stated that “voluntary measures” are being considered, he emphasized that it is not yet time to implement rationing. The opposition has called on the government to prioritize stock allocations to areas experiencing shortages. The Australian Industry Group has suggested considering rationing, fuel tax reductions, and public transport discounts to mitigate economic impacts. The Prime Minister stressed that states must maintain “national consistency” on fuel security to avoid acting independently.

In terms of critical minerals strategy, Resources Minister Madeleine King stated at the Minerals Week summit that advanced manufacturing countries like France are stepping up cooperation with Australia to ensure the security of critical mineral supply chains. Since the signing of the critical minerals framework agreement between the U.S. and Australia last October, Australia has signed industry cooperation agreements with Japan, South Korea, India, France, Germany, and the UK. King revealed that France has participated in policy and financing aspects but has not yet announced funding for large-scale projects. Australia is advancing 49 mining projects and 29 midstream processing projects, with expected critical mineral export revenue reaching AUD 18 billion in the new fiscal year. The government has provided AUD 28 billion in financial support and is building a strategic reserve worth AUD 1.2 billion, expected to be operational in the second half of the year. King emphasized that the East has been deeply involved in this field for 40 years, and Australia needs to make long-term plans.

Regarding wage policy, the federal government submitted comments to the Fair Work Commission, requesting higher real wage increases for minimum wage and industry standard wage workers above the inflation rate this year. Employment Minister Amanda Rishworth stated that low-income workers in the hospitality, retail, and healthcare sectors should not “bear the brunt” of the cost of living pressures. The government did not propose specific numbers but emphasized that growth must be “economically sustainable” and aligned with inflation returning to target ranges. Unions are demanding a 5% raise, while business groups advocate for 3.5%. Treasurer Jim Chalmers warned that due to the impact of the Middle East conflict, previous models predicting an inflation rate of 5% are now “conservative.” The Liberal Party called for independent decisions by the Fair Work Commission while considering businesses’ capacity. The Business Council emphasized that real wage growth must be supported by productivity; otherwise, it could exacerbate inflation and upward pressure on interest rates.

Financial Insights

On Thursday, the S&P/ASX 200 Index fell slightly, closing around 8,525 points, after rising for two consecutive trading days. Following conflicting statements from Washington and Tehran regarding Middle East peace efforts, U.S. stock index futures plummeted, leading to weaker investor sentiment. The U.S. claimed negotiations were ongoing, while Iran insisted it had no intention of negotiating. Christopher Kent, Assistant Governor of the Reserve Bank of Australia, warned that long-term conflicts could push up inflation and long-term expectations, emphasizing the need to prevent surging energy prices from disrupting inflation expectations. Concerns over production cuts in China’s Tangshan iron ore center led to softening iron ore prices, with mining stocks down 0.6%; gold stocks fell 2.1%, with Ramelius Resources leading the decline at 3.3%. Financial stocks showed mixed performance, with the four major banks experiencing varied results. Energy stocks rose by 1.5%, with Woodside Energy up 2.3% and Yancoal Australia up 1.1%.

Geopolitical Events

U.S.-Iran Conflict: Short Ceasefire and Stalemate. On Thursday, U.S. President Trump announced a 10-day pause in attacks on Iranian energy facilities at the request of the Iranian government, stating that negotiations are progressing “very smoothly.” However, at a cabinet meeting, Trump simultaneously pressured Iran to permanently abandon its nuclear ambitions and open the Strait of Hormuz, else “continue striking,” and indicated that the U.S. might take ground action or control Iranian oil.

Iran, however, took a hardline stance. A senior official told Reuters that the 15-point proposal from the U.S. is “one-sided and unfair,” benefiting only U.S.-Israeli interests and falling far short of the minimum negotiation requirements. Iran demands guarantees of no further military action after the ceasefire, compensation for damages, and control over the strait, while also seeking to include Lebanon in any ceasefire agreement. Despite maintaining communication through diplomatic channels via countries like Pakistan and Turkey, significant differences remain between the two sides.

On the military front, the conflict continues. Iran launched multiple waves of missiles at Israel on Thursday, causing damage and casualties in Tel Aviv and other areas; Israel continues to carry out airstrikes on targets within Iran. The conflict has pushed global oil prices above $105 per barrel, putting pressure on stock markets and impacting shipping, plastics, technology, and tourism sectors.

Ukraine Conflict: Russia’s Drone Attacks Port, Diplomatic Maneuvering Complicated. On Thursday night, Russia launched a large-scale drone attack on port facilities along the Danube in Odessa, Ukraine, damaging energy and industrial facilities, cutting power to nearly 17,000 households, and affecting the Izmail area bordering Romania. The Romanian Ministry of Defense reported that debris from a downed drone fell into its territory. The frequency of attacks on Ukrainian port infrastructure has significantly increased recently.

Diplomatically, Russia expressed satisfaction with Ukrainian President Zelensky’s statement linking U.S. security assurances to Ukraine’s abandonment of Donbas, describing it as an important signal of Ukraine’s understanding of the U.S. position. The Kremlin stated it is in contact with the U.S. to prepare for a new round of peace negotiations, denying any loss of interest in negotiations due to the Iranian war. Russia also warned that it would take political, legal, and “asymmetric” countermeasures against the UK’s authorization of military boarding and seizing Russian vessels, stating that this would make navigation in British waters “unsafe.”

Technical Analysis

Short-term Price Outlook for the Australian Dollar:

0.6960-0.6850

Technical Indicator Summary:

On Thursday, the U.S. dollar maintained a strong position against major currencies. As hopes for easing tensions in the Middle East gradually faded, concerns that the energy shock would persist long-term resurfaced, leading to increased demand for safe-haven assets. The Australian dollar against the U.S. dollar fluctuated downwards from an intraday high of 0.6955 to below the 0.6900 mark, maintaining a generally bearish trend.

Data released that evening showed a slight increase in initial jobless claims in the U.S. last week, with the labor market remaining stable, providing room for the Federal Reserve to keep interest rates unchanged while monitoring war-related inflation risks. Investor caution regarding the uncertain prospects for diplomatic efforts led to a general decline in stock markets, while oil prices rose, further supporting the dollar.

In geopolitical terms, Iran’s foreign minister stated that Iran is reviewing the U.S. proposal to end the war but does not intend to hold talks. According to U.S. media AXIOS, two U.S. officials and informed sources revealed that the U.S. Department of Defense is developing military options against Iran, which may include deploying ground forces and conducting large-scale bombing operations. Sources indicate that if negotiations with Iran do not yield substantial progress in the short term, Trump is prepared to escalate the situation.

As the risk of escalation in the conflict looms, market concerns about disruptions to shipping through the Strait of Hormuz are intensifying, potentially driving oil prices higher. Rising oil prices not only directly elevate inflation expectations but also reinforce the necessity for the Federal Reserve to maintain a tightening stance, thereby providing dual support for the dollar—benefiting from both the influx of safe-haven funds and hawkish monetary policy expectations. For the Australian dollar, a stronger dollar directly pressures the exchange rate, while the ongoing tensions in the Middle East further undermine risk appetite for cyclical currencies like the Australian dollar, placing continued downward pressure on the AUD/USD exchange rate.

Karl Schamotta, chief market strategist at Corpay in Toronto, stated: “The overall market sentiment is currently one of disappointment, as the prospects for a ceasefire in the Middle East are gradually dissipating. Traders are still flocking to safe-haven assets and preparing for a longer blockage of the Strait of Hormuz and the potential overheating of major economies due to high energy prices.”

Uto Shinohara, senior investment strategist at Mesirow Currency Management in Chicago, added: “The broader central bank backdrop remains hawkish, and the market has repriced expectations, anticipating about a 10 basis point tightening of Fed policy this year, a significant shift from last week’s expectations for a rate cut.”

From the perspective of the 4-hour technical indicators, the Australian dollar against the U.S. dollar yesterday operated within a weak range between the middle and lower bands of the Bollinger Bands, with bearish momentum continuing to dominate. The Bollinger Bands are showing initial signs of expansion, indicating that short-term volatility may rise, which could further strengthen the current downward momentum. Specifically, the upper band is positioned at around 0.7030, providing dynamic resistance for short-term rebounds; the middle band has moved down to the 0.6960 level, becoming a key dividing line for short-term bullish and bearish battles; the lower band extends to around 0.6900, providing dynamic short-term support. In terms of momentum indicators, the 14-period relative strength index (RSI) continues to operate in the weak range of 30 to 40, indicating that bearish momentum has not fully released, while bullish forces remain weak, and overall market sentiment remains bearish without clear signs of trend reversal.

From the perspective of the 4-hour trend structure, the Australian dollar against the U.S. dollar has shown a pattern of weakening since reaching a peak of 0.7186, with both the highs of rebounds and the lows of pullbacks continually decreasing, maintaining a clear downward trend structure. Currently, short-term support is located in the 0.6850 area; if this level is effectively broken, bearish targets will extend further to the 0.6800 mark or even lower; meanwhile, short-term resistance focuses on the 0.6960 level, and if the exchange rate rebounds and stabilizes above this area, the short-term bearish pattern may be temporarily alleviated, with the exchange rate potentially testing resistance around 0.7010 and seeking breakthroughs at higher levels.

Short-term Price Path Outlook for the Australian Dollar:

Upward: 0.6960-0.7010

Downward: 0.6850-0.6800

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