The Australian dollar was little changed against the US dollar on Monday, with AUD/USD near 0.7072 after pulling back from a three-year high around 0.7147. Trading was quieter with US markets shut for Presidents’ Day and some Asian markets closed for the Lunar New Year.
The US dollar steadied as markets reassessed when the Federal Reserve might cut rates after recent US data. US headline CPI rose 0.2% month-on-month in January, down from 0.3% in December, while annual inflation eased to 2.4% from 2.7%.
Us Data And Fed Timing
US Nonfarm Payrolls rose by 130K in January, up from December’s revised 48K gain and above expectations. The unemployment rate edged down to 4.3% from 4.4%.
Interest-rate futures point to more than 50 basis points of cuts over the rest of 2026, and the CME FedWatch Tool shows the first cut expected in June. This week includes the Fed’s Meeting Minutes on Wednesday, plus core PCE inflation and the advance Q4 GDP reading on Friday.
In Australia, the RBA minutes are due Tuesday after a 25 basis point rise to 3.85% from 3.60% at the start of 2026. Australia’s employment report on Thursday is also in focus, with markets pricing a possible rate rise as early as May.
Given the US Dollar’s renewed strength, we see the recent pullback in AUD/USD from its high near 0.7147 as a significant development. Last month’s US jobs report, which added 130,000 payrolls, and the unemployment rate dropping to 4.3% give the Federal Reserve room to be patient. This tempers expectations for immediate rate cuts, providing a solid floor for the dollar.
Rba Fed Policy Divergence
The divergence in central bank policy is becoming the most critical factor for this currency pair. While we see the Fed on a path toward eventual easing, with US annual inflation now down to 2.4%, the Reserve Bank of Australia is moving in the opposite direction. The RBA’s recent rate hike to 3.85% was a direct response to persistent price pressures, especially after Australia’s Q4 2025 inflation report showed a stubbornly high 4.1% annual rate.
This policy clash suggests that volatility is likely to increase, especially with key data releases this week. We should consider using options to trade this expected rise in price swings, such as buying AUD/USD put options to bet on further downside. These instruments allow for defined risk while capitalizing on potential downward moves driven by strong US data or a hawkish Fed tone.
Looking ahead, Thursday’s Australian employment report will be a major catalyst. Another strong jobs number in Australia could fuel bets on a May rate hike from the RBA, but any sign of weakness would likely accelerate the AUD/USD decline. Given the current momentum, we favor positions that benefit from a stronger US dollar, with a break below the 0.7000 psychological level being a key target.
