AUD/USD climbed nearly 1% above 0.7000 after the RBA raised interest rates. This move made the Australian Dollar stronger against other currencies, especially the Japanese Yen. The RBA raised rates by 25 basis points to 3.85% because of inflation concerns. Last quarter, the CPI grew at an annual rate of 3.6%, up from 3.2%. December’s CPI was 3.8% Year-on-Year, exceeding the expected 3.6%. The US Dollar is stable despite a partial federal shutdown. The US Dollar Index is around 97.60, close to its weekly high. Recent ISM data showed growth in the manufacturing sector, with the PMI rising to 52.6 from 47.9 in December. Looking ahead, key economic reports like US ADP Employment Change and ISM Service PMI are set to be released on Wednesday. The RBA announces interest rate decisions eight times a year, which impacts the strength of the Australian Dollar. Hawkish decisions strengthen the AUD, while dovish ones weaken it. The last RBA interest rate announcement matched expectations, increasing from the previous 3.6%. The Reserve Bank of Australia has prioritized fighting inflation with the rate hike to 3.85%. Governor Bullock’s strong stance suggests more rate hikes may follow soon. In this context, buying AUD call options could be a smart move to take advantage of potential gains in the currency. We should also keep an eye on the US dollar, which remains strong near 97.60. The recent ISM manufacturing data for January was surprisingly positive, indicating growth. Upcoming US employment and services data could further strengthen the dollar and limit gains for the AUD/USD pair. The 0.7000 level has historically served as a key pivot point for the pair, often acting as strong resistance. With the RBA’s hawkish stance and a steady US economy, implied volatility is likely high. Selling an out-of-the-money strangle might be a way to earn premium if the pair remains stable after initial excitement. Looking back, late 2025 inflation data showed core components remained high, justifying the RBA’s current aggressive approach. Meanwhile, the US labor market is strong. The last Non-Farm Payrolls report of 2025 exceeded expectations by adding 235,000 jobs, indicating the Federal Reserve isn’t likely to cut rates soon. We noticed the Australian dollar was particularly strong against the Japanese Yen, given that the Bank of Japan’s policy is much more accommodative than the RBA’s. For those optimistic about the Aussie but cautious about the US dollar’s strength, a long AUD/JPY position through futures or options may provide a clearer trend.

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