The AUD/USD pair has adjusted after hitting a three-year high, mostly due to profit-taking. This shift occurs as the US Dollar strengthens from recent political and budget-related events in the United States. Currently, AUD/USD is about 0.7000, down by 0.60% for the day, as it pulls back from its earlier peak. This ends a three-day winning streak as the US Dollar gains some support.

Inflation And The Australian Dollar

Australia’s Producer Price Index (PPI) increased by 3.5% year-over-year in Q4 2025, remaining the same as the previous quarter. With no rise in upstream inflation, the Australian Dollar is feeling pressure. However, recent consumer inflation data hints at possible tightening of monetary policy. Market forecasts indicate over a 70% chance of a 25-basis-point rate hike by the Reserve Bank of Australia at the next meeting. Expectations also suggest a cash rate of 3.85% by May and around 4.10% by September, which may limit any decline in AUD/USD. Meanwhile, the US Dollar is recovering, supported by political factors like Kevin Warsh’s appointment as head of the Federal Reserve. US producer price data shows steady inflation, giving the US Dollar a temporary edge over the AUD. The Australian Dollar’s daily performance varies against major currencies, with noticeable changes against the Japanese Yen.

Market Strategy Ahead Of RBA Meeting

The AUD/USD pair is pulling back from its three-year high to around the 0.7000 level. This correction is due to profit-taking and a slight recovery in the US Dollar. Stable Australian producer price data from late 2025 has also lowered enthusiasm for the Aussie. The key event approaching is the Reserve Bank of Australia meeting in the first week of February. Markets believe there is over a 70% chance of a rate hike, which has largely supported the recent strength of the Australian Dollar. This short-term dip may be a buying opportunity if the RBA follows through on expectations. With uncertainty lingering, using options to manage risk is a smart strategy for the upcoming weeks. Implied volatility on AUD/USD options is expected to rise ahead of the RBA meeting, as was seen during the 2022-2023 rate hiking cycle. This makes strategies that benefit from significant price moves, regardless of direction, potentially attractive. Additionally, we should keep an eye on the United States, as the US Non-Farm Payrolls report is set to be released in the first week of February, coinciding with the RBA’s decision. A strong jobs report could boost the dollar, especially with new Fed leadership and ongoing inflation noted in late 2025. This could create tension, limiting the Aussie’s gains even if the RBA raises rates. One potential strategy is to buy AUD/USD call options to prepare for a rally after the RBA meeting, as they are currently cheaper during this dip. To guard against a unexpectedly strong dollar, buying cheaper, out-of-the-money put options can limit downside risk from robust US economic data that might overshadow the RBA’s decisions. Looking back at 2025, market expectations of RBA tightening were a key factor, driving the currency to its recent highs. The central question now is whether these expected rate hikes will be enough to counter the renewed stability of the US Dollar. The Aussie’s weakness against the dollar, compared to its strength against the yen, indicates this is mainly about the US Dollar’s temporary comeback. Create your live VT Markets account and start trading now.

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