The Australian dollar was mostly unchanged against the US dollar on Monday. AUD/USD traded near 0.7072 after falling back from a three-year high around 0.7147. Trading was calmer, with US markets closed for Presidents’ Day and some Asian markets shut for the Lunar New Year.
The US dollar held steady as investors reassessed when the Federal Reserve may start cutting rates, after new US data. Headline CPI rose 0.2% month on month in January, down from 0.3% in December. Annual inflation also slowed to 2.4% from 2.7%.
Us Data And Fed Timing
US Nonfarm Payrolls rose by 130K in January, up from December’s revised gain of 48K and above expectations. The unemployment rate ticked down to 4.3% from 4.4%.
Interest-rate futures now price in more than 50 basis points of cuts through the rest of 2026. The CME FedWatch Tool shows markets expecting the first cut in June. This week brings the Fed’s Meeting Minutes on Wednesday, followed by core PCE inflation and the advance Q4 GDP reading on Friday.
In Australia, RBA minutes are due Tuesday, after a 25 basis point rate rise to 3.85% from 3.60% at the start of 2026. Australia’s employment report on Thursday is also a key focus. Markets are pricing a possible rate rise as early as May.
With the US dollar strengthening again, we see AUD/USD pulling back from its high near 0.7147 as an important shift. Last month’s US jobs report showed 130,000 new jobs, and the unemployment rate fell to 4.3%. This gives the Fed room to wait. It also reduces expectations for near-term rate cuts and helps support the US dollar.
Rba Fed Policy Divergence
Policy differences between the two central banks are becoming the key driver for this pair. We still see the Fed moving toward rate cuts over time, with US inflation now at 2.4%. However, the Reserve Bank of Australia is moving the other way. The RBA’s recent hike to 3.85% aimed to address ongoing price pressure, especially after Australia’s Q4 2025 inflation report showed annual inflation holding at 4.1%.
This policy split suggests volatility could rise, especially with major data releases this week. One way to trade bigger price swings is through options, such as buying AUD/USD put options to position for more downside. Options can limit risk while still allowing traders to benefit if the pair falls on strong US data or a more hawkish Fed message.
Looking ahead, Thursday’s Australian jobs report is likely to be a major catalyst. Another strong result could increase expectations of a May RBA hike. But any signs of weakness would likely speed up a decline in AUD/USD. Given the current trend, we prefer positions that benefit from a stronger US dollar, with a break below the 0.7000 psychological level as a key target.
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