The Australian Dollar rose 0.1% to about 0.7065 against the US Dollar in early European trading on Tuesday. It moved higher ahead of Australia’s January Consumer Price Index (CPI) release on Wednesday.
Markets are watching the inflation figures for clues on the Reserve Bank of Australia’s next steps. Earlier this month, the RBA lifted the Official Cash Rate by 25 basis points to 3.85% and kept open the option of further rises, citing upside inflation risks.
Rba Inflation Outlook
RBA Governor Bullock said on 3 February that inflation remained too strong. Australia’s statistics agency is forecast to report annual CPI at 3.7% in January, down from 3.8% in December, while Trimmed Mean CPI is expected to hold at 3.3%.
The US Dollar stayed firm against other major currencies, despite trade-related threats from US President Donald Trump. The US Dollar Index was up 0.12% at around 97.80.
On Monday, Trump warned of higher levies on countries he said were “playing games with existing trade agreements”. The comments followed a US Supreme Court verdict.
We can see from this past snapshot that the Australian dollar was trading with strength above 0.7000 against the US dollar ahead of an inflation report. Today, on February 24, 2026, the situation is different, with the AUD/USD struggling around the 0.6550 mark. This shows a significant shift in fundamentals and sentiment over the last couple of years.
Trading Implications And Risk Management
Back then, the market was anticipating an annual CPI of 3.7%, a figure that was considered a risk to the upside. Looking at our most recent quarterly data from late 2025, inflation came in at 4.1%, showing that price pressures have been more persistent than previously hoped. This ongoing inflation battle continues to be the primary driver for the Reserve Bank of Australia.
The RBA’s cash rate in that historical period was 3.85%, and the bank was still signalling potential hikes. We know they followed through, with our current official cash rate now standing at 4.35% for several months. This higher rate environment puts a different kind of pressure on the currency and the economy.
On the other side of the trade, the US dollar’s strength was once tied to trade policy, with the DXY near 97.80. Today, its strength is a result of the Federal Reserve’s own fight with inflation, holding interest rates high and pushing the DXY to consistently trade above 104. This backdrop of a stronger US dollar makes significant gains for the AUD more challenging.
For derivative traders, this means volatility around Australian CPI data remains a key opportunity, just as it was in the past. We should consider buying straddles or strangles ahead of the next monthly CPI release to profit from a larger-than-expected move in either direction. The market is still highly sensitive to any inflation surprises.
Given the AUD’s weaker position compared to the historical text, we should also look at strategies that protect against further downside. Buying AUD put options or implementing bearish put spreads could be a prudent way to manage risk. This is especially relevant if US economic data continues to come in strong, reinforcing the “higher for longer” interest rate narrative.
