AUD/USD traded near 0.7140 on Thursday, up 0.21% after reaching a three-year high of 0.7147. It later eased as the US Dollar strengthened on solid US jobs data, but the pair stayed above 0.7100.
In Australia, consumer inflation expectations rose to 5% in February from 4.6% in January, the highest level in almost three years. This keeps the focus on possible further Reserve Bank of Australia (RBA) tightening.
Rba Policy Outlook
Last week, the RBA raised its key rate for the first time in more than two years, taking it to 3.85%. The central bank said more hikes are possible if inflation stays sticky, and that decisions will remain data-dependent.
In the US, Nonfarm Payrolls rose by 130K in January versus 70K expected. The Unemployment Rate fell to 4.3% from 4.4%. Job gains were mainly in healthcare, and earlier data were revised lower.
Weekly Initial Jobless Claims fell to 227K on Thursday. This lowers expectations for a near-term Federal Reserve rate cut. Markets have reduced the odds of a March cut and are now leaning more toward June.
We remember that the Australian dollar was trading near three-year highs around this time in 2025, reaching 0.7147. Much of that strength came from inflation expectations rising to 5%, which increased bets that the RBA would keep hiking rates. At the time, the RBA had just lifted its key rate to 3.85%.
Market Regime Shift
Now, on February 12, 2026, the outlook looks very different. Official data for Q4 2025 show Australia’s annual inflation has cooled to 3.4%. That is a clear improvement, but it is still above the RBA’s target. As a result, the RBA has paused its hiking cycle and has kept the cash rate at 4.35% for the past four months.
On the other side of the pair, early-2025 worries about the US labor market did not turn into the sharp slowdown some expected. US inflation is now just under 3%, and the Federal Reserve has signaled a patient, data-driven approach. Rate cuts are not expected until at least the third quarter of this year. This is different from early 2025, when markets were pricing in much earlier Fed cuts.
With both central banks now on hold, the strong trend seen in early 2025 has faded. Derivative traders may want to note that implied volatility in AUD/USD has fallen. The pair is now trading in a tighter range around 0.6650. Strategies that can benefit from range-bound prices and lower volatility—such as selling straddles or using iron condors—may fit better than buying options for large upside moves.
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