Executive Summary
AUD/USD trades at 0.7063 (RBA close 10 March), having touched 0.7118 intraday — the highest level since February 2023 — representing gains of +5.7% YTD, +5–6% over three months, and +13.0–13.5% over one year. The dominant narrative is a hawkish RBA regime change: the February hike to 3.85% made the RBA the first G10 central bank to reverse from cuts back to hikes, with OIS pricing a terminal rate of 4.10–4.20% by year-end against a backdrop of broad USD weakness (DXY −9% YoY). Valuation is near equilibrium — the BIS REER at 110.52 sits at the 60th–65th percentile of its long-run range, and spot is within 1–2% of OECD GDP-based PPP fair value of 0.719. The key tension is between the powerful rate and growth fundamental story (2.6% GDP, 4.1% unemployment, re-accelerating core inflation) and an increasingly precarious risk profile: CFTC positioning at a 3-year maximum bullish extreme (100th percentile COT Index), options markets pricing aggressive downside hedging (25Δ risk reversal at 9-month lows), a current account deficit widening to −2.9% of GDP (worst since 2015), and geopolitical risk from the US-Iran conflict pushing oil above $100/bbl and VIX to 22.8. Our headline stance is tactically neutral-to-mildly-bullish with low conviction, recognising that positioning crowding limits near-term upside despite favourable fundamentals, while strategically bullish as the carry advantage and growth outperformance should reassert once positioning normalises and geopolitical event risk resolves.