The Australian Dollar (AUD) gained against the US Dollar (USD) after China’s central bank held its Loan Prime Rates steady. The one-year and five-year LPRs remained at 3.00% and 3.50%. The Reserve Bank of Australia (RBA) policy outlook will be scrutinised with the release of its Meeting Minutes. The ASX 30-Day Interbank Cash Rate Futures for February 2026 indicated a 27% chance of a rate hike to 3.85% at the next RBA Board meeting.
The US Dollar Index (DXY) is down, trading around 98.60. The markets await the US GDP Annualised data for the third quarter. Fed discussions include keeping rates steady and the potential for future cuts. The CME FedWatch tool noted a 79.0% probability of rate maintenance at the January Fed meeting, while the chance of a 25-basis-point cut declined to 21.0%. US CPI eased to 2.7% in November, below market expectations, with the core CPI rising 2.6%.
Australian Dollar Bulls
The AUD/USD pair shows a bullish trend, hovering near the nine-day EMA at 0.6620. A break above this threshold may drive the pair towards recent highs. In contrast, a dip below an ascending channel could increase downward pressure. The AUD was the strongest currency versus its major counterparts today.
The Australian dollar is showing strength, and we expect this to continue into the new year. The Reserve Bank of Australia is likely to maintain a hawkish stance, particularly with consumer inflation expectations now at 4.7%. Recent data showing iron ore prices, a key Australian export, surging past $150 per tonne this month further supports a stronger currency.
In contrast, the US dollar is on weaker ground following the Federal Reserve’s rate cuts earlier in 2025. With US core inflation at a multi-year low of 2.6% and last week’s final reading of Q3 GDP being revised down to 1.9%, the Fed has little reason to raise rates again soon. This growing difference in policy between a hesitant Fed and a vigilant RBA is the main story for us right now.
Options Strategy
Given this divergence, we are looking at buying call options on the AUD/USD pair to capitalize on the expected upward movement. The current price action around 0.6620 presents a good entry for strategies that will profit from a bullish move. Implied volatility is still at a level that makes long call strategies a viable way to position for a rise towards the 0.6700 mark.
We remember well from the rapid rate-hiking cycle of 2022-2023 how quickly central bank views can change. The political situation in the US, with President Trump’s pending announcement of a new Fed Chair, also introduces an element of risk. For this reason, using defined-risk option strategies like call spreads could be a more sensible approach than taking outright long positions.
The RBA meeting minutes due tomorrow will be crucial in confirming the hawkish outlook we are anticipating. We will also be watching Australia’s next employment report closely, after November’s unemployment rate unexpectedly dropped to 3.8%. Another strong jobs report would almost certainly increase the market’s pricing for a February rate hike above the current 27% probability.
