The RBA raised the cash rate by 25 basis points to 3.85% after inflation rose sharply and private demand strengthened. January CPI is due on Wednesday. The last reading showed headline inflation at 3.8% and the trimmed mean at 3.3%, both above the 2% to 3% target band.
China’s central bank is expected to leave rates unchanged on Tuesday. US tariff policy also shifted after the Supreme Court struck down IEEPA tariffs in a 6–3 ruling. This was followed by a proposal for a 15% global tariff under Section 122 starting Tuesday.
Inflation And Policy Focus
AUD/USD fell 0.39% on Monday and did not recover 0.7100. It is still above the 50-day EMA at 0.6880 and the 200-day EMA at 0.6650. The broader uptrend from 0.6667 remains in place, with a year-to-date high at 0.7147.
Stochastics have turned down from overbought levels. Price action between 0.7050 and 0.7100 looks indecisive. Support is at 0.7000. Resistance is at 0.7100 and 0.7147, with 0.7200 above and the 50-day EMA below.
Key AUD drivers include RBA policy, iron ore prices, China’s economy, inflation, growth, and the trade balance. Iron ore exports total about $118 billion a year (2021 data), mostly to China. The RBA targets inflation in the 2% to 3% range.
With the RBA now at 3.85%, inflation is the key focus. The January CPI release matters most. The last quarterly reading in late 2025 showed inflation at 4.1%, still well above the RBA’s 2% to 3% target. If price pressure stays high, the RBA may keep a hawkish bias, which can support the Australian dollar.
The China outlook is the main offset. China is Australia’s largest trading partner, and recent data has been soft. Last month’s Caixin Manufacturing PMI was only slightly expansionary at 50.8. Weak growth could reduce demand for Australian exports and limit AUD upside.
Key Market Risks And Trade Setup
This softness is already showing up in iron ore, a major AUD driver. After trading above $140 per tonne late last year, prices have slipped back toward $125 on concerns about Chinese demand. Traders should watch commodity futures closely. Further declines would likely weigh directly on AUD/USD.
Another major risk is the renewed US threat of a 15% global tariff. That would likely trigger a risk-off move, pushing investors into safe havens and away from commodity-linked currencies like the AUD. This increases downside risk and makes unhedged long positions riskier in the coming weeks.
On the chart, AUD/USD is losing momentum below the 0.7100 resistance area, and near-term strength is fading. With mixed fundamentals, a range-trading approach—or a strategy that benefits from a mild pullback—may fit better. Selling call options with strikes above 0.7150 could generate premium while waiting for clearer direction from CPI data or geopolitical headlines.
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