The AUD/USD pair has risen to about 0.6715 during the early Asian session on Tuesday, thanks to a weaker US Dollar. Traders are looking forward to important US economic data, including Nonfarm Payrolls, which could affect future monetary policy. Recently, the US led a major military operation in Venezuela, capturing President Nicolas Maduro and his wife, who now face charges in the US. However, financial markets are more focused on the upcoming US job data than on geopolitical issues. The expectation is for an increase of 55,000 jobs.

Interest Rate Hikes from the Reserve Bank of Australia

Interest rate hikes from the Reserve Bank of Australia (RBA) could strengthen the Australian Dollar. The RBA may contemplate raising rates to address inflation concerns, with its next policy meeting scheduled for February. Several factors influence the Australian Dollar, including the RBA’s interest rate decisions, Iron Ore prices, China’s economic health, and the Trade Balance. A favorable Trade Balance, driven by high-demand exports like Iron Ore to China, helps support the value of the AUD. Changes in quantitative easing and China’s economy can also impact the currency’s strength in different ways. One year ago, in early January 2025, the AUD/USD was also strengthening above 0.6700. At that time, the market was focused on upcoming economic data while largely overlooking the geopolitical situation in Venezuela. This setup created a clear opportunity based on expectations versus reality.

The Key Event Traders Were Preparing For

The key event traders were preparing for was the US Nonfarm Payrolls (NFP) report for December 2024. While most expected a modest gain of just 55,000 jobs, the actual report showed a remarkable increase of 333,000 new jobs. This significant surprise led to an immediate rise in the US Dollar, putting downward pressure on the AUD/USD pair. On the Australian side, expectations for a Reserve Bank of Australia (RBA) rate hike in February 2025 were growing. However, the Australian CPI data for November 2024, released that week, came in slightly lower than expected at 3.4%. This tempered hopes for a rate hike, and the RBA decided to keep its cash rate at 4.35% in February 2025. Even though fundamentals like iron ore prices provided some support—trading above $135 per tonne in early 2025—macroeconomic surprises were the main influence. This period from last year illustrated that derivative strategies should have been adjusted for a reversal of the initial AUD strength. For instance, buying puts on the AUD/USD or selling call option spreads ahead of the NFP release could have taken advantage of the following downturn. Create your live VT Markets account and start trading now.

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