The Australian Dollar (AUD) rose against the US Dollar (USD) after China’s central bank decided to keep its Loan Prime Rates unchanged. The one-year LPR remains at 3.00%, and the five-year LPR stays at 3.50%. Investors are closely watching the Reserve Bank of Australia (RBA) as it prepares to release its Meeting Minutes. According to the ASX 30-Day Interbank Cash Rate Futures for February 2026, there is a 27% chance of a rate increase to 3.85% in the next RBA Board meeting. The US Dollar Index (DXY) has dropped and is around 98.60. Markets are looking forward to the upcoming US GDP data for the third quarter. Discussions at the Fed focus on keeping rates steady versus potential future cuts. The CME FedWatch tool indicates a 79.0% chance of maintaining current rates at the January meeting, while the likelihood of a 25-basis-point cut has decreased to 21.0%. The US Consumer Price Index (CPI) eased to 2.7% in November, which is lower than what analysts expected, while core CPI increased to 2.6%.

Australian Dollar Bulls

The AUD/USD pair is showing positive movement, staying close to the nine-day EMA at 0.6620. If it breaks above this level, it could reach recent highs. However, if it dips below an upward trend channel, it may face more downward pressure. Today, the AUD is the strongest currency compared to major currencies. The strength of the Australian dollar is expected to continue into the new year. The RBA is likely to maintain a strong stance, especially as consumer inflation expectations are now at 4.7%. Additionally, iron ore prices, which are important for Australia’s economy, have surged past $150 per tonne this month, supporting a stronger currency. In contrast, the US dollar is facing challenges due to the Federal Reserve’s recent rate cuts in early 2025. With US core inflation now at a low of 2.6% and last week’s final reading of Q3 GDP revised down to 1.9%, there is little reason for the Fed to raise rates soon. This growing gap in policy between the cautious Fed and the alert RBA is a key focus for us.

Options Strategy

Given this situation, we are considering buying call options on the AUD/USD pair to take advantage of the expected price increase. The current trading around 0.6620 offers a good entry point for profitable strategies. Implied volatility remains attractive for long call strategies, which could lead to a rise towards the 0.6700 level. We remember how quickly central banks can change their views from the fast rate hikes of 2022-2023. With President Trump’s upcoming announcement about a new Fed Chair, there is additional risk involved. For this reason, we suggest using defined-risk options strategies, like call spreads, as a more prudent approach compared to outright long positions. The RBA Meeting Minutes set to be released tomorrow will be vital in confirming our bullish outlook. We will also keep a close eye on Australia’s next employment report, especially after November’s unemployment rate unexpectedly fell to 3.8%. A strong jobs report could significantly increase the market’s odds for a February rate hike beyond the current 27% probability. Create your live VT Markets account and start trading now.

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