Australia's Bureau of Statistics released the February Consumer Price Index (CPI) data on March 25 at 12:30 am GMT, revealing a consistent miss across key inflation metrics compared to expectations and previous readings. Headline CPI year-on-year was reported at 3.7%, below both the expected 3.8% and the previous 3.8%. The monthly headline CPI came in at 0.0%, missing the forecast of 0.1% and falling short of the prior 0.4%. The trimmed mean CPI, which is the Reserve Bank of Australia's (RBA) preferred underlying inflation gauge, registered 3.3% year-on-year versus an expected and previous 3.4%, and 0.2% month-on-month compared to the expected and previous 0.3% [1].
This broad-based softness in inflation metrics triggered a sharp bearish reaction in the AUD/USD currency pair. The pair broke below the S1 support level at 0.6962 and closed the session lower, marking AUD/USD as the worst-performing major currency in the G10 for the week [1]. The bearish setup was further amplified by Tuesday's flash PMI data, which showed Australia's services sector collapsing to 46.6 against a forecast of 54.7—a historic miss that heightened doubts about the RBA's flexibility and reinforced negative sentiment toward the Australian dollar heading into the CPI release [1].
Trading strategies outlined in the case study included an aggressive short position on a confirmed break below S1 (0.6962) with targets at S2 (0.6905) and S3 (0.6824), and a conservative approach waiting for a bounce toward 0.7000 before entering short, both with stops above 0.7045 [1]. The directional bias was bearish at medium conviction (3/5), though the RBA's still-hawkish stance and geopolitical headline risk were noted as potential factors that could limit or reverse the move [1].
The market reaction was decisive, with AUD/USD breaking down and closing the week as the worst-performing G10 currency pair. The combination of a soft CPI print and a dramatic services PMI miss created a volatile macro environment, prompting traders to lean net bearish on the Australian dollar [1].
CONCLUSION
Australia's February CPI miss and a historic services PMI shortfall drove a sharp selloff in AUD/USD, making it the worst-performing G10 currency pair for the week. The market's bearish response was reinforced by consistent softness in inflation metrics and deteriorating economic sentiment. Traders remain cautious, with the RBA's stance and geopolitical risks still in focus.