The AUD/USD pair fell after mixed Australian employment data was released, with prices staying slightly down around the mid-0.6600s. The Australian Bureau of Statistics reported the Unemployment Rate held steady at 4.3%, which was better than the expected rise to 4.4%. However, the number of employed individuals dropped by 21.3K, falling short of the anticipated increase of 20K. Traders are cautious about making aggressive bets against the AUD due to worries about future interest rate hikes from the Reserve Bank of Australia (RBA). These concerns have helped support the AUD/USD pair. Meanwhile, the US Federal Reserve’s recent 25 basis point cut, along with plans for another cut in 2026, has weakened the US Dollar, affecting the currency pair. Fed Chair Jerome Powell pointed out risks in the US labor market and hinted at more rate cuts ahead. This outlook has shifted market expectations, leading traders to anticipate additional cuts. As a result, any decline in the AUD/USD may be viewed as a buying chance, even with mixed economic signals. This blend of factors keeps downside risks for AUD/USD limited while providing some support for the Australian dollar. The contrasting strategies of a hawkish RBA and a dovish US Fed send a clear message. We see the recent dip in AUD/USD due to a single job report as temporary. Any move lower toward the mid-0.6600s should be seen as a buying opportunity rather than the start of a downturn. The Fed’s recent rate cut and dovish statements play a crucial role in our outlook for a weaker US dollar. We’re looking forward to the US Consumer Price Index (CPI) data for November 2025, which is important. If inflation hovers around the 3.1% mark seen in late 2023, it would support the Fed’s cautious approach and increase expectations for more rate cuts in 2026. On the other hand, the RBA remains worried about ongoing inflation, which favors the Aussie dollar. Australia’s quarterly CPI for the fourth quarter of 2025 will be released in late January, and we expect it to show inflation stubbornly high, possibly above 4.0%, similar to late 2023. Such an outcome would reinforce the RBA’s cautious stance and make it hard for them to consider rate cuts, broadening the policy gap with the Fed. For derivatives traders, selling put options on the AUD/USD with strike prices in the mid-0.6500s could be a smart move to collect premiums due to the limited downside. Alternatively, buying call options during these dips offers a cost-effective way to position for a rebound towards recent highs. Given the strong underlying support, we should avoid taking aggressive bearish positions. We also need to think about market conditions as the holiday season approaches. Lower trading volumes in late December can cause exaggerated price changes. This scenario requires careful risk management, making defined-risk option spreads a wiser choice compared to simple long futures contracts. Recent Commitment of Traders reports showed that large speculators still hold significant net-short positions on the Australian dollar. This positioning suggests a potential short squeeze if the AUD/USD starts to rise. A sustained increase could force these traders to cover their shorts, adding significant upward momentum to the pair.

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