AUD/USD traded near 0.7050 on Friday, down 0.13% on the day. The pair gave back some recent gains after weaker-than-expected US GDP data forced markets to rethink US growth and interest rate expectations. US GDP increased at an annualised 1.4% in Q4 2025, down from 4.4% in the previous quarter. Markets had expected 3%. Consumer spending and investment supported growth, while government spending and exports fell.

Us Growth And Inflation Divergence

The core PCE Price Index rose 2.7% quarter-on-quarter, above expectations. It rose 0.4% month-on-month in December, which suggests inflation pressures are still present. Overall, the data suggests slower growth but firmer inflation, which is shaping expectations for future US policy. For the Australian Dollar, changes in US rate expectations and moves in the US Dollar remain key drivers, alongside the Reserve Bank of Australia’s hawkish stance and a strong labour market. Looking at Q4 2025, the US outlook is mixed. The sharp drop in GDP growth to 1.4% surprised markets and points to a weaker economy than expected. At the same time, core PCE inflation remains persistent, showing that price pressures are not easing as quickly as growth is slowing. This combination of weak growth and sticky inflation increases uncertainty, which tends to lift options pricing. January 2026 data supports this view: consumer confidence fell to a six-month low, while wage growth stayed high at 4.1% year-over-year. As a result, implied volatility in pairs like AUD/USD may rise. That can make strategies such as long strangles or straddles appealing for traders expecting a large move but unsure of the direction.

Near Term Trading Implications

In the near term, the easier move may be a stronger US dollar, which would push AUD/USD lower. The Federal Reserve is in a difficult position and, as in similar periods in 2023, it may keep its focus on inflation until it clearly cools. Traders may consider buying put options on AUD/USD, targeting a move toward the 0.6900 support level last seen in late 2025. However, the risk of a sharp rebound is high. The weak GDP result is a strong warning signal. If the next Non-Farm Payrolls report also falls well short of expectations, markets could quickly shift from focusing on inflation to fearing recession. That change would likely lead traders to price in faster Fed rate cuts, weakening the US dollar and sending AUD/USD sharply higher. Create your live VT Markets account and start trading now.

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