AUD/USD trades near 0.7110 on Wednesday, up 0.56%, supported by a better global backdrop and hawkish remarks from the Reserve Bank of Australia. Support also follows China’s CPI figures, as China is Australia’s main trading partner.
China’s inflation rose 0.2% year on year in January, after 0.8% previously, despite missing expectations. The data suggests disinflationary pressure may be easing, which has aided Asian-linked currencies, including the Australian Dollar.
China Inflation And Rba Signal
RBA Deputy Governor Andrew Hauser said inflation remains too high and the bank is prepared to take further action to return it to target. Markets have increased the chances of another 25 basis point rate rise at coming meetings.
Australian housing credit data showed an increase in first-home buyer loans and a rise in the average loan size. This points to ongoing strength in housing demand and potential price pressures.
In the US, January Nonfarm Payrolls rose by 130,000 versus 70,000 expected, the Unemployment Rate fell to 4.3%, and Average Hourly Earnings growth held at 3.7%. These figures support the view that the Fed can keep rates in the 3.50%–3.75% range.
Downward revisions to earlier data, linked to the annual benchmark update, suggest weaker job growth last year. Attention now turns to Australia’s Consumer Inflation Expectations on Thursday.
Early 2025 Versus Today
Looking back at the dynamics from early 2025, we saw the AUD/USD rally towards 0.7110 on a hawkish Reserve Bank of Australia. Today, the pair trades much lower around 0.6750, as the market weighs different economic pressures than we faced a year ago. This shift requires a re-evaluation of our underlying assumptions for the currency pair.
The RBA’s stance, while still cautious, is not as aggressively hawkish as it was back then. With our latest quarterly inflation data from January 2026 showing CPI at 3.9%, inflation has cooled but remains stubbornly above the target band. The RBA has held the cash rate at 4.60% in its last two meetings, signaling it is now more data-dependent than proactively tightening.
In contrast, the US Federal Reserve is facing renewed inflationary pressures. The most recent jobs report for January 2026 showed a robust gain of 210,000 jobs, and the latest CPI reading came in hotter than expected at 3.4% year-over-year. This has pushed back market expectations for Fed rate cuts, strengthening the US dollar’s appeal relative to the Aussie.
The outlook from China, Australia’s key trading partner, also offers less support than it did in early 2025. Recent Purchasing Managers’ Index (PMI) data has been mixed, hovering just around the 50-point mark that separates expansion from contraction. This signals a more fragile recovery, acting as a headwind for Australian export demand and the AUD.
Given the divergence between a surprisingly resilient US economy and a more cautious Australian outlook, we should consider strategies that benefit from potential AUD/USD downside. Buying put options on the AUD/USD offers a defined-risk way to position for a drop, especially ahead of key US data releases. This allows us to capitalize on a stronger US dollar trend while capping our potential losses.
We must pay close attention to the upcoming US inflation data next week and the RBA’s meeting minutes for any change in tone. The central bank divergence we are seeing today is a more powerful driver than the one observed last year. Any further strength in US economic figures could accelerate a move lower in the currency pair.
