The Australian Dollar has bounced back, nearing a 14-month high of 0.6727 against the US Dollar. This rise is boosted by the Reserve Bank of Australia’s willingness to tighten monetary policy if inflation does not decrease as expected. The AUD is benefiting from anticipated interest rate increases, although trading volumes are low due to the New Year’s holiday. Key events such as the Federal Open Market Committee meeting minutes and upcoming inflation data will greatly influence the currency’s direction.

US Economic Indicators

US economic data shows the Dollar is gaining strength, trading around 98.00. The chance of holding interest rates steady at the Fed’s January meeting has climbed to 83.9%. Employment data shows mixed results: Initial Jobless Claims are down, while Continuing Claims are up. In Australia, inflation hit 3.8% in October, with forecasts suggesting a possible rate increase in February 2026. The AUD/USD pair seems to be gaining, testing the 0.6700 mark. Technical signals indicate a short-term upward trend, with a 14-day RSI of 64.22 indicating strong momentum. The AUD is also influenced by China’s economic policies due to trade relations and economic data. When the Reserve Bank of Australia eases or tightens monetary policy, it can either weaken or strengthen the AUD. Economic indicators like GDP growth play a role too; a stronger economy could lead to rate hikes. There is a noticeable contrast between the Reserve Bank of Australia’s aggressive stance and the Federal Reserve’s cautious approach. The RBA may raise rates if the important Q4 inflation report on January 28 shows high numbers, while the Fed has already cut rates by 75 basis points in 2025. This difference suggests that the AUD/USD pair could keep rising.

Strategy and Market Dynamics

Considering the current situation, we think buying call options on the Australian Dollar against the US Dollar is a smart strategy for the next few weeks. Implied volatility for AUD/USD options is low, around 8.2%, making these options cheaper than during the rate hikes of 2023 and 2024. A continued movement toward the 0.6840 resistance could yield significant profits. We should be cautious about the US Dollar’s strength, as recent data showed the US economy grew unexpectedly strong at an annualized rate of 4.3%. The FOMC minutes coming out later today may lower expectations for the two expected Fed cuts in 2026. Given this, a lower-risk approach, like a bull call spread, is wiser than simply going long on futures. We also need to keep an eye on developments in China, since its economy greatly impacts the Australian dollar. Recent news of targeted government investments, along with the December 2025 Caixin Manufacturing PMI remaining in expansion at 50.7, supports the outlook for a stronger AUD. This investment could help the AUD/USD pair surpass recent highs. Currently, our focus is on the 0.6727 resistance level, the highest we’ve seen since October 2024. We expect that positioning before the January 28 inflation data will largely drive price action in early 2026. Low trading volumes typical of early January could exaggerate price movements, so we recommend placing entry orders carefully. Create your live VT Markets account and start trading now.

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