The Australian Dollar rose against the US Dollar after a two-day pullback. AUD/USD was up 0.2% to about 0.7090 in European trading on Monday.
Markets are waiting for the Reserve Bank of Australia minutes on Tuesday. The RBA lifted the Official Cash Rate by 25 basis points to 3.85% at its earlier meeting.
Australian Jobs Data In Focus
Australian jobs data for January is due on Wednesday. Forecasts point to 20K new jobs, down from 65.2K in December, and an Unemployment Rate of 4.2% versus 4.1%.
In the US, trading was quieter due to President’s Day. The US Dollar Index was slightly higher near 97.00.
Attention also turns to the Federal Open Market Committee minutes from the January meeting, due on Wednesday. Central banks aim to keep prices stable and often target inflation close to 2%.
They mainly use interest rates, raising them to tighten policy and cutting them to ease policy. Decisions are made by policy boards led by a chair or president, with public communication limited during a blackout period.
Central Bank Expectations Shift
Looking back to this time in February 2025, we remember the market anticipating a hawkish Reserve Bank of Australia, which kept the Aussie dollar buoyant near 0.7100 against the US dollar. The situation today is quite different, as the AUD/USD is trading significantly lower, closer to 0.6600. This reflects a major shift in central bank expectations over the past year.
Last year, the RBA’s cash rate was 3.85% with Governor Bullock signaling more hikes were possible. We now see the cash rate sitting lower at 3.60% after cuts in late 2025, while the US Federal Reserve’s rate is at 4.00%. This interest rate difference, or spread, now favors holding US dollars over Australian dollars more than it did a year ago.
The Australian labor market also presents a contrasting picture. In February 2025, we were looking for a solid 20,000 jobs to be added, but the latest data for January 2026 showed a more subdued gain of only 12,000 jobs. Australia’s unemployment rate has also ticked up from 4.2% a year ago to 4.5% now, reducing pressure on the RBA to consider raising rates.
Meanwhile, the US Dollar Index (DXY) was calm around 97.00 in February 2025. Today, the DXY is much stronger, trading near 104.50 as the US economy has shown more resilience than many other developed nations. This underlying strength in the greenback creates a significant headwind for the AUD/USD pair.
Given this backdrop, we believe upside potential for the Aussie dollar is limited in the coming weeks. Derivative traders could consider strategies that profit from the AUD/USD remaining in its current range or drifting slightly lower, such as selling call spreads. Implied volatility is currently lower than it was during the hiking cycle of 2025, making options strategies less expensive to implement.
The upcoming RBA minutes and quarterly inflation report will be critical to watch for any change in the central bank’s neutral stance. Any surprisingly strong Australian data could cause a short-term rally, but the broader trend appears constrained. For now, we see selling into strength as a more prudent approach than chasing rallies.
