The Australian Dollar (AUD) is trading a bit lower against the US Dollar (USD), with the AUD/USD pair around 0.6995. This is close to its highest point in nearly three years, as traders are mostly indifferent to the Federal Reserve’s latest monetary policy announcement. The Federal Reserve kept its benchmark interest rate steady at 3.50%-3.75%, as expected. This follows three straight cuts of 25 basis points last year, showing a cautious stance due to upcoming economic data and risks.

Federal Reserve’s Decision

The decision passed with a 10-2 vote, where Governors Stephen Miran and Christopher Waller pushed for an additional 25-basis-point cut. The Fed’s announcement highlighted solid economic growth but pointed out slow job gains and stabilizing unemployment rates. Officials noted that inflation is still relatively high and stressed the uncertainty in the economic outlook. The Committee is ready to change policy if risks to their goals arise. A heat map shows how major currencies have changed against the US Dollar, with it being strongest against the Swiss Franc. Reflecting on the Fed’s choice to hold rates in late 2025, the key point was the internal disagreement, as two members wanted a cut. This split indicated a dovish trend that we are still analyzing weeks later. As of January 29, 2026, the AUD/USD pair has dipped to about 0.6850 as traders consider the central bank’s next steps. The Fed’s cautious approach appears justified, as recent data revealed US job growth slowed to just 150,000 in December 2025. Additionally, the last inflation figure was a stubborn 2.8%, well above the Fed’s target. This mixed information adds to the market’s uncertainty about the US Dollar’s direction in the coming quarter.

Interest Rate Differences

There is a notable interest rate gap, with the Reserve Bank of Australia keeping its cash rate at 4.35%, compared to the Fed’s upper limit of 3.75%. This difference usually supports the Australian Dollar, indicating that dips in the AUD/USD could be seen as buying chances. For derivative traders, this favors strategies like selling out-of-the-money puts on the pair to earn premium, betting on this rate gap to offer support. Implied volatility in the pair remains low, as options markets aren’t anticipating major surprises at the next Fed meeting in March. Historically, periods of low volatility like this, similar to mid-2023, can come before sharp, unexpected shifts. Therefore, buying long-dated straddles or strangles could be a smart way to prepare for a possible breakout from the current tight range. Create your live VT Markets account and start trading now.

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