AUD/USD edged up after Australian inflation data but stayed within the range seen over the past two weeks. It traded near 0.7075–0.7080, up over 0.20% on the day, with attention turning to President Donald Trump’s State of the Union address.
The speech follows uncertainty linked to US tariffs, with some measures struck down by a Supreme Court ruling last week. Markets are also watching references to Iran due to the risk of a US military strike, which could affect demand for the safe-haven US Dollar and the risk-sensitive Australian Dollar.
Australian Inflation Supports Rba Stance
Australia’s ABS said the Consumer Price Index rose 3.8% year on year in January. This was above the 3.7% forecast and matched the prior month’s reading, supporting the Reserve Bank of Australia’s hawkish position.
The US Dollar held the previous day’s modest gains and stayed close to the monthly peak reached last week. That may limit further gains in AUD/USD.
We recall how the AUD/USD was trading in a tight range around 0.7080 in early 2025, buoyed by strong Australian inflation data. A year later, the situation has shifted, with the pair now trading significantly lower near 0.6550 as different economic drivers have taken precedence. The specific geopolitical risks concerning Iran that dominated sentiment back then have since subsided.
Looking at the current fundamentals, the landscape has evolved from what we saw in 2025. Australian CPI has moderated slightly to 3.4% as of January 2026, while US inflation remains persistent at 3.1%. This has allowed the US Federal Reserve to maintain its high interest rate at 5.50%, creating a significant yield advantage over the Reserve Bank of Australia’s 4.35% cash rate, which has weighed on the Aussie dollar throughout the past year.
Low Volatility Options Setup
For derivative traders, it is important to note that market volatility has been relatively low, with the VIX index hovering around 14. This environment makes options pricing comparatively cheap, presenting an opportunity for strategic positioning ahead of potential market moves. The cost of buying protection or placing a directional bet is therefore less prohibitive than it was during more turbulent times.
Given the persistent downward pressure from the interest rate differential, traders should consider buying AUD/USD put options. This strategy offers a defined-risk way to profit from a further decline in the currency pair. With options being inexpensive, establishing these bearish positions is a cost-effective method to speculate on a break below the recent support levels in the coming weeks.
We must also look ahead to the upcoming employment data from both Australia and the US. These releases are major catalysts that could easily disrupt the recent stability and inject a fresh wave of volatility into the market. A long straddle, which involves buying both a call and a put option, could be a prudent strategy to capitalize on a large price move in either direction, regardless of the data’s outcome.
