The Australian dollar rose over 0.80% against the US dollar on Wednesday. AUD/USD traded at 0.7118 after rebounding from a low of 0.7057.
Australian inflation data beat forecasts in January, increasing expectations of tighter Reserve Bank of Australia (RBA) policy. CPI rose 0.4% month-on-month versus 0.3% expected, while headline inflation was 3.8% year-on-year and trimmed mean inflation rose from 3.3% to 3.4% year-on-year.
Fed And Rba Messaging
Federal Reserve officials also spoke, including comments from Thomas Barkin and Jeffrey Schmid. Governor Michelle Bullock said the economy changed rapidly since mid-2025, after disinflation progressed and growth slowed.
The RBA raised rates by 25 basis points earlier this month to 3.85% following a strong jobs report. Markets priced Fed cuts totalling 51 bps by year-end, while the RBA was projected to raise rates by 45 bps.
The week ahead includes Australia’s Private Capital Expenditure, expected at 0%, and US Initial Jobless Claims on Thursday. Technical levels cited included support near 0.7050, 0.7000 and around 0.6900, with resistance at 0.7150, 0.7200 and 0.7300, and RSI at 65.
Back in 2025, we saw how a hot inflation report pushed the Australian dollar higher against the US dollar. That report showed underlying inflation at its highest in over a year, forcing the Reserve Bank of Australia (RBA) into a more aggressive stance. This policy divergence has been a key theme, with AUD/USD now trading near 0.7450.
Rba Policy And Market Implications
The RBA did follow through on the hawkish sentiment, bringing the cash rate to its current level of 4.35% in late 2025. While inflation has cooled from its peak, the latest data shows it remains sticky at 3.9% year-over-year, which is well above the RBA’s target. This persistent pressure justifies the central bank’s decision to hold rates high for now.
Australia’s labor market remains remarkably tight, with the unemployment rate holding at just 4.1% as of January. This strength gives the RBA little reason to consider easing policy in the near term. This contrasts with the U.S. Federal Reserve, which has maintained a cautious tone after a single 25 basis point cut in late 2025.
For derivative traders, the positive carry on long AUD positions remains attractive due to the interest rate differential. However, with the initial explosive rally now maturing, we believe selling out-of-the-money puts or implementing bull put spreads could be a prudent strategy to collect premium while maintaining a bullish bias. Watch for the pair to find support near the 0.7300 level, which was the previous upside objective back in 2025.
We should remain mindful of shifts in global market sentiment, as the Australian dollar is sensitive to risk-off moves. A sudden spike in US inflation could quickly reverse the Fed’s dovish lean, narrowing the policy divergence that has supported the Aussie. Therefore, keeping an eye on implied volatility in AUD/USD options is crucial for managing risk in the weeks ahead.
