The Australian Dollar weakened against the US Dollar as China’s RatingDog Manufacturing PMI improved slightly to 50.3 in January. Australia’s TD-MI Inflation rose to 3.6% year-over-year, with a monthly increase slowing sharply to 0.2%. Despite a jump of 4.4% in ANZ Job Advertisements, the Australian Dollar remained subdued as the Reserve Bank of Australia held the cash rate at 3.6%.
US Dollar Resilience
US Dollar movements were minimal ahead of anticipated ISM Manufacturing PMI data. The US Dollar gained previously following Kevin Warsh’s Federal Reserve Chair nomination, indicating a cautious monetary approach. US producer-side inflation remained firm at 3.0% year-over-year, reinforcing a stable policy rate stance. Core PPI also rose to 3.3%.
While the AUD/USD pair showed some bullish traits, primarily trading around 0.6940, primary support lies at 0.6927. The pair saw potential to rise towards 0.7093, with support marked by the nine-day moving average. Australia’s Consumer Price Index was steady at 3.8% year-over-year in December, influenced by PMI and employment data. Overall, the Australian Dollar faces pressures from global and domestic economic indicators.
The US Dollar is showing strength, and we think this trend could continue in the coming weeks. While markets have priced in a high chance of a rate hike from the Reserve Bank of Australia tomorrow, the nomination of Kevin Warsh as the new Fed Chair suggests a more cautious US monetary policy. This shift in the US is currently overshadowing the RBA’s expected hawkishness.
The US economic data reinforces this view, as the January Non-Farm Payrolls report released last Friday showed a robust addition of 295,000 jobs, well above forecasts. This strong labor market gives the Federal Reserve little reason to consider easing policy soon. Therefore, the path of least resistance for the US Dollar appears to be upward for now.
Australian Dollar Outlook
From our perspective, the Australian Dollar faces challenges even if the RBA hikes as expected. We saw Chinese manufacturing data from January show only slight improvement, and iron ore futures have stalled around $130 per tonne, failing to provide a significant lift. This suggests that buying put options on the AUD/USD, with strike prices below the 0.6900 support level, could be a prudent strategy to position for potential downside.
The conflicting signals between central banks are likely to increase market volatility in the near term. Looking back at the data from late 2025, we saw Australian inflation and employment figures running hot, yet the currency has struggled to gain traction. For traders anticipating sharp price swings but unsure of the direction, establishing a long straddle using options around the RBA’s announcement could capture a significant move either way.
