The AUD/USD pair has weakened as strong US economic data boosts the US Dollar, with the exchange rate currently at 0.6684, down 0.20% for the day. This shift follows positive US economic indicators that suggest a healthy economy, reducing hopes for quick interest rate cuts by the Federal Reserve. US Initial Jobless Claims dropped to 198,000, lower than the expected 215,000, and manufacturing indexes are showing positive signs. The inflation data is mixed; the Consumer Price Index (CPI) rose by 0.3% in December, meeting expectations, while core CPI increased by only 0.2%, falling short of forecasts.

Market Predictions

Investors expect no changes at the Fed’s January meeting, with a 46% chance of a rate cut by June. On the other hand, the Reserve Bank of Australia is not anticipated to lower rates soon, as inflation remains above target. Next week’s economic calendar includes important data releases from Australia, such as the TD-MI Inflation Gauge and employment figures. Additionally, China’s GDP and the PBoC decision may impact the Australian Dollar (Aussie). The US GDP and PCE inflation report will also be vital for understanding future monetary policy. Key factors influencing the AUD include RBA interest rates, trade relations with China, and iron ore prices. A strong trade balance usually supports the AUD, as increased export demand raises the need for the currency. As we begin 2026, we see a pattern in AUD/USD similar to January 2025. The main issue remains the differing policies of the US Federal Reserve and the Reserve Bank of Australia. This policy gap, which kept the US dollar strong last year, will likely continue affecting trades.

US Growth Impacts

Optimism for a Fed rate cut by June 2025 turned out to be too high, with strong US growth and persistent inflation leading the Fed to maintain its stance longer than expected. US unemployment remained low at an average of 3.8% throughout 2025, giving the Fed little reason to ease rates. It may be wise to consider options to protect against a situation where expectations for rate cuts are delayed again. The Australian dollar is also struggling due to China’s economic slowdown, a theme that continued throughout 2025. China’s GDP growth for 2025 was only 4.8%, limiting demand for Australian exports. Iron ore prices are currently below $110 per tonne, significantly lower than their highs from two years ago. Given this situation, we believe it’s sensible to prepare for further AUD/USD weakness or stable trading in the coming weeks. Traders might consider buying put options on the AUD/USD to benefit from a potential drop, especially ahead of next week’s important US inflation data. Alternatively, selling call options with a strike price around 0.6750 could be a good strategy to earn premium if the pair remains capped. Create your live VT Markets account and start trading now.

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