The Australian Dollar (AUD) improved against the US Dollar (USD) after three days of losses, driven by worries about the Federal Reserve. A criminal investigation into Fed Chair Jerome Powell is looking into renovations at the Fed’s Washington headquarters and possible misinformation to Congress. In Australia, ANZ Job Advertisements fell by 0.5% in December, while household spending rose by 1.0% in November. The Reserve Bank of Australia’s policy outlook is uncertain due to mixed Consumer Price Index (CPI) data. With the US Dollar Index (DXY) dropping to about 98.90, many believe the Federal Reserve might keep interest rates the same. The US added 50,000 jobs in December, but nonfarm payrolls didn’t meet expectations, and unemployment decreased to 4.4%. Additionally, US Average Hourly Earnings rose by 3.8% over the past year.

The Australian Dollar Rebound

The Australian Dollar recovered toward 0.6700 in a cautious market. The AUD/USD pair showed positive signs within its rising trend. In November, Australia’s Trade Surplus shrank significantly, with only slight changes in both imports and exports. Interest rates, the Chinese economy, and Iron Ore prices are vital factors influencing the Australian Dollar’s performance. The investigation into the Fed Chair is crucial right now, causing considerable uncertainty for the US Dollar. Such political pressure on the central bank is unusual and shakes confidence in US monetary policy. We’re already noticing one-month implied volatility for major USD pairs like AUD/USD rise to over 11.5% as traders respond to this new risk. Looking back to the December 2025 data, the miss on Nonfarm Payrolls and the slow increase in ongoing jobless claims suggest a softening US labor market. This aligns with the consensus, as Fed Funds futures indicate a 95% chance the Fed will keep rates steady this month. The Treasury Secretary’s recent call for rate cuts adds to the cautious outlook. In Australia, the Reserve Bank seems to be maintaining its position, noting that rate cuts are not imminent. The upcoming quarterly CPI report will be crucial in shaping this perspective. For now, steady iron ore prices around $135 per tonne are giving the Aussie dollar strong support.

Future Market Expectations

With the US Dollar weakening, we expect the AUD/USD to trend higher in the coming weeks. A lasting rise above the 0.6700 level would confirm this positive outlook, potentially leading to resistance testing near 0.6766. We think buying call options is a smart move to reflect this view, as it helps define our risk if the Fed issue changes unexpectedly. The rising uncertainty suggests we should brace for larger price movements in either direction. This situation makes long volatility strategies, like buying straddles on the AUD/USD, appealing ahead of the Australian CPI release. Such a position could profit from significant price swings, regardless of direction, which is ideal in the current unpredictable environment. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now