Australia’s CPI rose 3.8% year-on-year in January, according to the ABS. This was slightly above the 3.7% forecast and unchanged from the prior 3.8%. Monthly CPI was 0.4% in January, down from 1.0% previously. The RBA trimmed mean CPI rose 0.3% month-on-month and 3.4% year-on-year in January. After the release, AUD/USD was up 0.23% to 0.7077.

Inflation Surprise And Market Reaction

Before the release, CPI was expected to come in at 3.7% year-on-year. Trimmed mean inflation was forecast at 3.3%. AUD/USD was trading near 0.7100. The RBA’s inflation target is 2–3%. In its February Statement on Monetary Policy, the RBA assumed about 60 basis points of rate hikes this year. Markets had priced nearly 39 basis points of tightening and expected the cash rate to hold at 3.85% in March. The RBA forecast growth of 2.1% by June. It also forecast trimmed mean inflation at 3.7% by mid-year, and core inflation at 2.6% by mid-2028. Headline inflation was projected to peak at 4.2%, partly due to the expiry of electricity rebates. Iron ore is Australia’s largest export, worth about $118 billion a year in 2021. Technical levels cited for AUD/USD include 0.7147, 0.7157, 0.6897, 0.6821, 0.6687, 0.6663, and 0.6605, with RSI above 62 and ADX near 43.

Implications For Rates And Trading

January inflation came in a touch hotter than expected, at 3.8%. This suggests the disinflation we saw in late 2025 has paused for now. As a result, the case strengthens for the Reserve Bank of Australia (RBA) to keep a cautious, hawkish stance in the months ahead. This report also backs up the RBA’s recent message that policy may not be restrictive enough. With trimmed mean inflation still elevated at 3.4%, there is little reason for the central bank to consider easing. Markets may now more seriously price in the chance of at least one more rate hike by mid-year. The labour market also remains very tight. The latest data shows the unemployment rate holding at 3.8% in January. A strong job market often supports wage growth and consumer demand, which can make it harder to push core inflation down quickly. This resilience gives the RBA more room to keep rates high, or even lift them further. External conditions are also turning more supportive for the Australian dollar. Recent trade data from China, Australia’s largest trading partner, showed a surprise rise in factory orders. This helped push iron ore prices back above $135 per tonne. Strong commodity demand like this is a fundamental tailwind for the AUD. For derivatives traders, this points to several possible approaches. One way to position for higher rates is to sell Australian government bond futures, since bond prices typically fall when markets price in a more hawkish RBA. With inflation proving sticky, rate cuts before year-end look less likely. In FX, AUD/USD looks supported around 0.7077. Buying AUD/USD call options with a strike near 0.7150 could be a lower-cost way to target more upside. Implied volatility may rise ahead of the next RBA meeting, which could also support long-volatility strategies. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now