The Australian Dollar has strengthened, with AUD/USD surpassing 0.6800 following a robust December jobs report. Australia’s economy exceeded expectations by adding 65,200 jobs, with unemployment dropping to 4.1%, down from 4.3% and surpassing the Reserve Bank of Australia’s projection of 4.4%.
Full-time employment increased by 54,800 positions, while part-time roles grew by 10,400. A slight rise in the participation rate to 66.7% and a 0.4% monthly increase in hours worked suggest a tighter labour market. Bets for a 25 basis points interest rate hike by the Reserve Bank of Australia have increased to 60% ahead of their February meeting.
Potential February Rate Hike
The potential for a February rate increase could be further supported if the upcoming December CPI data reveals trimmed mean inflation above the Reserve Bank’s 3.2% year-on-year projection. This would likely boost the Australian Dollar even further.
We recall how the strong December 2024 jobs report, released in January of last year, caused a surge in rate-hike bets and pushed AUD/USD above 0.6800. That report showed a stunning 65,200 jobs added and unemployment falling sharply to 4.1%. It was a clear signal of a tightening labor market that caught many by surprise.
The situation now in early 2026 is markedly different, suggesting a more cautious approach. The most recent labor force data for December 2025 showed the unemployment rate has since drifted higher to 4.3%. Furthermore, the Q4 2025 CPI data confirmed that trimmed mean inflation fell to 2.9%, which is now within the RBA’s target band and eases pressure for further hikes.
United States Job Market
This contrasts with the United States, where the latest Non-Farm Payrolls report from early January 2026 again beat expectations, showing over 210,000 jobs were added in December. This persistent strength keeps the Federal Reserve on a much more hawkish footing than the RBA. This policy divergence is now the dominant factor weighing on the currency pair.
Given this backdrop, we see opportunities in buying AUD/USD put options to position for a potential slide towards the 0.6500 level over the next one to two months. A bear put spread could also be an effective strategy to reduce the upfront cost while defining risk. This allows traders to capitalize on downside momentum driven by the diverging central bank outlooks.
Implied volatility has remained somewhat elevated due to this policy uncertainty, making option selling strategies riskier. We see futures markets now pricing in less than a 15% chance of an RBA rate hike by mid-year, a stark reversal from the 60% probability we saw after the jobs report in January of last year. This confirms that the market’s focus has shifted from RBA hikes to the timing of potential cuts later in the year.
