AUD/USD rose slightly after Australia released inflation data, but it stayed within the range seen over the past two weeks. The pair traded near 0.7075–0.7080, up more than 0.20% on the day. Focus now shifts to President Donald Trump’s State of the Union address.
The speech comes after renewed uncertainty around US tariffs. Some measures were struck down by a Supreme Court ruling last week. Markets are also watching for any mention of Iran. The risk of a US military strike could change demand for the safe-haven US Dollar and the risk-sensitive Australian Dollar.
Australian Inflation Supports Rba Stance
Australia’s ABS said the Consumer Price Index rose 3.8% year on year in January. This was above the 3.7% forecast and matched the previous month. That supports the Reserve Bank of Australia’s hawkish stance.
The US Dollar held on to the previous day’s small gains and remained close to last week’s monthly peak. This could limit further upside in AUD/USD.
In early 2025, AUD/USD traded in a tight range near 0.7080, helped by strong Australian inflation. A year later, conditions have changed. The pair is now much lower, near 0.6550, as other economic factors have taken over. The specific Iran-related geopolitical risks that shaped sentiment at that time have since eased.
Today’s fundamentals also look different from 2025. Australian CPI has cooled slightly to 3.4% as of January 2026, while US inflation remains firm at 3.1%. This has allowed the US Federal Reserve to keep rates high at 5.50%. That is a clear yield advantage over the Reserve Bank of Australia’s 4.35% cash rate, and it has pressured the Aussie dollar over the past year.
Low Volatility Options Setup
For derivatives traders, recent volatility has been low, with the VIX hovering near 14. When volatility is low, options are often cheaper. This can make it easier to position for a potential move. Buying protection or taking a directional view may cost less than it would in more turbulent markets.
Because the interest rate gap continues to favour the US Dollar, traders may consider buying AUD/USD put options. This offers a defined-risk way to benefit if the pair falls further. With options relatively inexpensive, this can be a cost-effective way to position for a break below recent support in the weeks ahead.
It is also important to watch upcoming employment data from Australia and the US. These releases can be major catalysts. They could quickly end the recent calm and bring volatility back into the market. A long straddle—buying both a call and a put—may be a sensible way to target a large move in either direction, no matter how the data comes out.
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