AUD/USD traded near 0.7090 in Asian hours on Wednesday, recovering earlier losses. The move followed China’s CPI rising 0.2% year-on-year in January, down from 0.8% in December and below the 0.4% forecast.
China’s CPI was 0.2% month-on-month in January, matching the prior reading but under the 0.3% expectation. In Australia, Westpac Consumer Confidence fell 2.6% month-on-month to 90.5 in February, a 10-month low, after a 25 basis-point rate rise.
Australian Data And Us Demand Signals
NAB’s Business Confidence Index rose to 3 in January from a downwardly revised 2, the highest since October. In the US, Retail Sales were unchanged at $735 billion in December after a 0.6% rise in November, versus expectations for a 0.4% increase.
US Retail Sales increased 2.4% year-on-year, and total sales for October–December 2025 rose 3.0% (±0.4%) from a year earlier. Markets expect January Nonfarm Payrolls of 70,000, with the unemployment rate projected to hold at 4.4%.
Drivers of the Australian Dollar include RBA interest rates, Chinese economic conditions, and iron ore prices. Iron ore is Australia’s largest export at $118 billion a year using 2021 data, and the trade balance can also affect the currency.
The Aussie dollar is holding firm around 0.7090, but we see underlying weakness. China’s January inflation came in at only 0.2%, missing forecasts and slowing from December’s pace. This suggests demand from our biggest trading partner is softening.
All eyes are on the upcoming US jobs report, where the market is only expecting 70,000 new jobs. Looking back at late 2025, job growth was much stronger, so this low expectation signals a major shift in sentiment about the US economy. A significant miss or beat against this low bar will likely drive the next major move in the US dollar.
Commodity And China Growth Headwinds
We must also consider the pressure from commodity prices, a key driver for the Aussie. Iron ore prices have recently pulled back below $130 per tonne, retreating from the highs we saw in late 2025. This reflects the cooling demand from China’s property and construction sectors.
The soft inflation number from China is not an isolated event. Recent data showed the official Manufacturing PMI for January was 49.3, staying in contraction territory for the fourth consecutive month. This pattern of weak industrial activity puts a ceiling on the Australian dollar’s potential.
Here at home, the picture is also mixed, which suggests caution. While business confidence saw a small rise, the recent interest rate hike has pushed consumer confidence to a 10-month low. This shows the Reserve Bank of Australia is tightening policy into a weakening consumer environment.
Given these conflicting signals, we expect volatility to increase in the coming weeks, especially around the US jobs data. Options strategies, such as buying straddles or strangles on AUD/USD, could be a way to trade the expected sharp move without picking a direction. The current stability feels fragile and unlikely to last.
