The AUD/USD pair has risen to about 0.7020 in Asian markets. This increase is due to reduced worries about AI disruptions and improved market confidence. The Australian Dollar gained from strong comments made by RBA Governor Michele Bullock, who pointed to capacity limits as a reason to raise the Official Cash Rate and stressed the importance of controlling demand growth. In December 2025, Australia’s monthly household spending dropped by 0.4%. This is a change from a 1.0% increase the month before and below the expected 0.2% rise. This marks the first decline since March 2024, highlighting ongoing cost pressures and high interest rates. Year-over-year spending growth slowed to 5.0%.

Positive Developments in US-Iran Nuclear Talks

Positive news from US-Iran nuclear negotiations has further supported the AUD. Iran’s President referred to recent discussions with the US as “a step forward,” while more talks will depend on further consultations. The upcoming US employment data is crucial, with expectations of 70,000 new jobs and an unemployment rate of 4.4%. Factors impacting the Australian Dollar include RBA interest rate decisions, iron ore prices, the state of the Chinese economy, and Australia’s trade balance. The RBA updates interest rates to keep inflation within the 2-3% range, and higher rates can strengthen the AUD. Changes in iron ore prices and China’s economic health are vital due to strong trade connections.

The Australian Dollar Strength

The Australian Dollar is showing strength, rising above 0.7000 against the US Dollar. This is supported by a hawkish RBA, which indicated that interest rates may need to stay elevated for longer to manage inflation. The RBA’s cash rate is currently at 4.85%, the highest level in over ten years, reflecting a tough policy approach. However, there are signs that these policies are affecting Australian consumers. The 0.4% decrease in household spending in December 2025 is the first monthly drop since March 2024, suggesting the RBA may have limited options for future rate hikes, potentially limiting the AUD’s rise. External factors are also supporting the AUD. Iron ore prices have recovered to over $135 per tonne, thanks to renewed optimism about demand from China. Recent data indicated that China’s Caixin Manufacturing PMI for January was at 51.1, showing slight growth in its important manufacturing sector. This positive trend from Australia’s largest trading partner, along with eased geopolitical tensions, is boosting risk-sensitive currencies like the AUD. The focus now shifts to the forthcoming US employment report, which will significantly impact the AUD/USD pair. The market anticipates only 70,000 new jobs, much lower than the averages seen in recent years. A weak employment figure could weaken the US Dollar and lift the AUD/USD pair, while a surprisingly strong report could disrupt the current surge. Given the mixed signals—a tough central bank versus a slowing domestic consumer, and supportive commodity prices against a major US data risk—we expect significant volatility. Traders in derivatives might look for strategies that take advantage of large price movements in either direction. The uncertainty around US jobs data makes directional bets risky, but options that capture volatility might be advantageous. Create your live VT Markets account and start trading now.

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