The Australian Dollar has increased in value due to optimism about global growth and rising commodity prices. Inflation data from Australia has led to anticipation of a rate hike by the RBA in February.
Commodity prices have supported the Australian Dollar’s performance. The latest CPI report showed an unexpected increase in headline inflation to 3.8% in December, moving away from the RBA’s target.
Revisiting Early 2025 Trends
We remember this time last year, in early 2025, when strong inflation data and rising commodity prices created a bullish case for the Australian dollar. The market was positioned for a Reserve Bank of Australia rate hike, which ultimately did happen that February. Now, in January 2026, a similar setup is giving us a strong sense of déjà vu.
The latest inflation figures for the fourth quarter of 2025 came in at 3.5%, which is still uncomfortably above the RBA’s target band. While the central bank has held the cash rate steady at 4.85% for the past six months, the market is now pricing in a greater than 50% chance of another hike by April. Traders should look at buying call options on the AUD/USD expiring in March to capture potential upside from a hawkish RBA statement next week.
Fueling this move is the renewed strength in commodity prices, with iron ore recently climbing back above $135 per tonne. This mirrors the dynamic we saw in early 2025 and provides fundamental support for the currency’s value. Using a bull call spread could be a cost-effective way to position for further AUD gains driven by these commodity tailwinds.
Uncertain Global Growth
However, the global growth picture is less clear than it was a year ago. Recent manufacturing PMI data from China, a key trading partner, has been soft and is barely holding in expansionary territory just above 50. This uncertainty means any long AUD positions should be protected with put options or clear stop-loss levels in case global sentiment sours.
