The Australian Dollar (AUD) is getting stronger against the US Dollar (USD). It’s close to a 14-month high of 0.6727, thanks to expected interest rate hikes by the Reserve Bank of Australia (RBA). Minutes from the RBA’s December meeting showed some uncertainty about their monetary policy, drawing attention to the upcoming Q4 Consumer Price Index (CPI) report set for January 28. If inflation is strong in Q4, the RBA may raise interest rates at their February 3 meeting. The AUD/USD pair might increase as the USD faces challenges. The Federal Reserve (Fed) may cut rates further in 2026. Currently, the US Dollar Index (DXY) is around 98.00, after the Fed reduced rates by 25 basis points in December, placing them in a 3.50%-3.75% range. Australia’s inflation in October was 3.8%, above the RBA’s target, raising chances for a rate hike in February 2026.

Support and Resistance Levels

The AUD/USD pair is near 0.6690 and is following an upward trend, supported by the nine-day Exponential Moving Average (EMA). Resistance levels are at 0.6700 and 0.6727. If it falls below 0.6681, it could drop to the August low of 0.6414. The RBA wants to keep inflation between 2%-3%, and interest rates influence the AUD’s strength. The RBA’s quantitative easing and tightening also affect the currency’s value. With the Reserve Bank of Australia and the US Federal Reserve taking different approaches, there’s a clear opportunity for the Australian dollar. The RBA’s recent statements show a strong focus on inflation, making the Q4 CPI report on January 28 crucial. This policy difference could create a positive outlook for the AUD/USD pair soon. We are expecting a higher-than-expected inflation reading from Australia. In 2025, core inflation has often surprised to the upside, and with consumer expectations at 4.7%, this trend seems likely. A strong CPI report would almost guarantee a rate hike at the RBA’s February 3 meeting, pushing the Aussie dollar higher.

Current Trends and Future Expectations

On the other hand, the US Federal Reserve’s current approach is weakening the US dollar. After cutting rates by a total of 75 basis points in 2025, recent data, such as the November Non-Farm Payrolls report showing job growth slowing to 155,000, supports the Fed’s cautious stance. While a rate cut in January seems unlikely, the market is anticipating further cuts later in 2026. This situation is reminiscent of late 2023 when a surprise spike in Australian inflation led to a sharp increase in the AUD/USD pair. Traders unprepared for this move missed a big opportunity. We believe a similar situation could occur in late January 2026. For derivative traders, buying call options on the AUD/USD with expiration in mid-February could be a smart move. This would allow us to benefit from a possible hawkish response from the RBA to inflation data. A strike price around 0.6750 would provide a good balance between risk and reward based on the current spot price. The main risk here is if the Australian CPI report comes in lower than expected. A drop below 0.6680 would signal that the bullish momentum has waned. Therefore, it’s wise to set stop-losses below this critical support level. Additionally, China’s recent fiscal stimulus announcements should support Australia’s economy. As China’s largest trading partner, increased investment there generally boosts demand for Australian commodities. We’ve already seen iron ore prices rise over 6% in December 2025 due to these expectations, which is a good sign for the Aussie dollar. Create your live VT Markets account and start trading now.

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