The Australian Dollar fell after reaching a 15-month high of 0.6932, as the US Dollar strengthened due to increased demand for safe assets. Strong PMI and employment reports from Australia raised expectations for tighter monetary policy from the Reserve Bank of Australia. Additionally, rumors of potential US intervention to support the Japanese Yen put more pressure on the US Dollar. The US Dollar Index, which compares the dollar to six major currencies, stabilized around 97.10. The US GDP grew by 4.4% in the third quarter of 2025, slightly exceeding expectations. Jobless claims dropped to 200,000 last week. The US PCE Price Index increased to 2.8% year-over-year in November, continuing its upward trend.

Australian Dollar Performance

The AUD/USD pair is trading near 0.6920 within a rising channel, with resistance at 0.6942. Main support is around 0.6800. The Australian Dollar performed differently against major currencies, losing value against the Japanese Yen and others. A variety of factors affect the Australian Dollar, including interest rates from the RBA, iron ore prices, the state of the Chinese economy, and trade balance. China’s economic health directly impacts demand for Australian exports, which in turn affects the AUD’s value. As of January 26, 2026, the Australian Dollar is in a tight spot against the US Dollar after recently hitting a 15-month high. Traders are facing a strong Aussie, supported by a hawkish central bank, versus a US Dollar that benefits from safe-haven demand. This makes for a complex trading situation in the coming weeks. The Reserve Bank of Australia’s firm position is supported by solid domestic data from late 2025’s PMI and employment reports. With headline inflation at 3.4% year-over-year in November 2025, well above the RBA’s target, the market expects further tightening. Current cash rate futures from the ASX suggest over a 50% chance of another rate hike by mid-year, supporting the strength of the AUD.

Central Bank Policy Divergence

On the other hand, the US Federal Reserve is taking a different approach, signaling patience before easing policy. Recent US data, like a 4.4% GDP growth in Q3 2025, shows economic strength, but core PCE inflation remains around 2.8%, close to the Fed’s target. This divergence in central bank policies creates a favorable condition for the AUD/USD pair in the medium term. However, short-term risks are influenced by geopolitical tensions, increasing the US Dollar’s appeal as a safe haven. Comments from President Trump about trade and foreign policy have added uncertainty to the markets, leading traders to prefer the dollar. This is why, despite the Fed’s cautious stance, the Dollar Index (DXY) has stabilized around the 97.00 level. We must also monitor Australia’s key export, iron ore, which remains strong, with prices for 62% Fe fines above $130 per tonne. This stability supports the Australian Dollar. However, recent manufacturing PMI data from China, Australia’s largest trading partner, has lingered around the 50 mark, indicating a fragile recovery that could present challenges. From a derivatives perspective, the AUD/USD pair is currently overbought, with the 14-day RSI above 80, suggesting caution. Instead of taking outright long positions, traders might consider options strategies, such as buying put spreads, to guard against potential declines towards the 0.6800 support level. This strategy allows for potential gains while managing downside risks. With increased uncertainty, implied volatility in the pair has risen, making options pricier but possibly more valuable. Traders anticipating significant moves without being certain of the direction could look into long straddles, which would benefit from a sharp breakout either above resistance at 0.6942 or below the current channel. It’s important to manage the costs associated with these positions. Lastly, the Australian Dollar has been particularly weak against the Japanese Yen, a traditional risk-off asset. For those holding long AUD/USD positions, shorting AUD/JPY could act as a useful hedge. If geopolitical risks rise, the flight to safety is likely to elevate the Yen more than the US Dollar, offering protection against losses on primary AUD/USD trades. Create your live VT Markets account and start trading now.

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