AUD/USD traded near 0.7140 on Thursday, up 0.21% after reaching a three-year high of 0.7147. It later eased as the US Dollar strengthened on solid US jobs data, but the pair stayed above 0.7100. In Australia, consumer inflation expectations rose to 5% in February from 4.6% in January, the highest level in almost three years. This keeps the focus on possible further Reserve Bank of Australia (RBA) tightening.

Rba Policy Outlook

Last week, the RBA raised its key rate for the first time in more than two years, taking it to 3.85%. The central bank said more hikes are possible if inflation stays sticky, and that decisions will remain data-dependent. In the US, Nonfarm Payrolls rose by 130K in January versus 70K expected. The Unemployment Rate fell to 4.3% from 4.4%. Job gains were mainly in healthcare, and earlier data were revised lower. Weekly Initial Jobless Claims fell to 227K on Thursday. This lowers expectations for a near-term Federal Reserve rate cut. Markets have reduced the odds of a March cut and are now leaning more toward June. We remember that the Australian dollar was trading near three-year highs around this time in 2025, reaching 0.7147. Much of that strength came from inflation expectations rising to 5%, which increased bets that the RBA would keep hiking rates. At the time, the RBA had just lifted its key rate to 3.85%.

Market Regime Shift

Now, on February 12, 2026, the outlook looks very different. Official data for Q4 2025 show Australia’s annual inflation has cooled to 3.4%. That is a clear improvement, but it is still above the RBA’s target. As a result, the RBA has paused its hiking cycle and has kept the cash rate at 4.35% for the past four months. On the other side of the pair, early-2025 worries about the US labor market did not turn into the sharp slowdown some expected. US inflation is now just under 3%, and the Federal Reserve has signaled a patient, data-driven approach. Rate cuts are not expected until at least the third quarter of this year. This is different from early 2025, when markets were pricing in much earlier Fed cuts. With both central banks now on hold, the strong trend seen in early 2025 has faded. Derivative traders may want to note that implied volatility in AUD/USD has fallen. The pair is now trading in a tighter range around 0.6650. Strategies that can benefit from range-bound prices and lower volatility—such as selling straddles or using iron condors—may fit better than buying options for large upside moves. Create your live VT Markets account and start trading now.

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The Canadian Dollar was mostly flat against the US Dollar on Thursday, with USD/CAD near 1.3571. The US Dollar was softer overall, which limited gains in the pair. US data showed Initial Jobless Claims fell to 227K from 232K, but still came in above the 222K forecast. Continuing Jobless Claims rose to 1.862M from 1.841M.

US Dollar Weakness Limits Upside

The US Dollar Index (DXY) traded near 96.85, close to a two-week low. The US Dollar struggled to keep earlier gains, even after a stronger Nonfarm Payrolls report, because revisions weakened the overall picture. The US added 130K jobs in January versus expectations of 70K. However, November and December payrolls were revised lower by a combined 17K. The BLS said average monthly job growth in 2025 was 15K. It also revised March 2025 total nonfarm employment down by 898,000, and cut total 2025 job growth to 181,000 from 584,000. Markets are waiting for the US CPI report on Friday. Trade headlines also pressured CAD after reports that Donald Trump may consider leaving the USMCA. Meanwhile, the House voted 219-211 to move forward on a measure aimed at ending tariffs on Canada.

US CPI And Trade Risks Guide The Range

With mixed signals, we expect USD/CAD to stay range-bound as fundamentals and politics pull in different directions. The large downward revisions to 2025 US job growth—cutting the annual total to just 181,000—are still weighing on the US Dollar. This weakness in the Greenback is acting as a ceiling for the pair. The US CPI report released this morning supported the disinflation trend. January CPI came in at 2.8% year-over-year, slightly below the 2.9% consensus. After this release, the CME FedWatch Tool shows markets pricing a 75% chance of a Fed rate cut by the June meeting. This supports our view that the US Dollar may stay softer over the medium term. At the same time, the risk of a US exit from the USMCA is putting a floor under USD/CAD, making it harder for the Canadian Dollar to strengthen much. This week, Canada’s Minister of International Trade warned of “significant economic disruption” if the agreement changes, which has kept CAD-focused investors on edge. Because of this uncertainty, shorting USD/CAD outright remains risky for now. For derivatives traders, this kind of uncertainty favors volatility strategies over directional bets. One-month USD/CAD implied volatility has risen to 8.5%, up from 6.2% last month. This suggests the market is preparing for a sharp move. Buying straddles or strangles may be a practical way to trade a breakout in either direction, potentially triggered by the next trade headline or a Fed comment. As another approach, to express the idea of US economic weakness without Canada-specific political risk, we are also watching other pairs. For example, call options on EUR/USD may offer a cleaner way to position for broad US Dollar softness. The euro does not face the same direct US trade threats, so it may rise more freely against the Greenback if US data continues to weaken. Create your live VT Markets account and start trading now.

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TD Securities said the Bank of Canada’s January meeting minutes mostly matched the tone of the rate decision, which was slightly dovish. Policymakers said the current policy rate is appropriate. They also said it is slightly stimulative relative to the neutral range. Updated projections were broadly in line with October’s Monetary Policy Report. The minutes also pointed to geopolitical uncertainty and how the Canadian economy might adjust under those conditions. They noted elevated uncertainty tied to the upcoming USMCA renewal and treated it as a risk to the outlook.

Bank Of Canada Rate Path

TD Securities said the Bank wants to keep flexibility when setting rates. It does not expect the Bank to rush into rate cuts if the near-term outlook weakens. It also sees potential rate hikes starting in 2027, if the output gap narrows this year. The Bank of Canada is signaling it will stay on hold. It wants to keep its options open and avoid sudden moves. This suggests a stretch where interest rates do not change much in either direction. For traders, that likely means the Canadian dollar and short-term bond yields stay range-bound over the next several weeks. Recent inflation data supports this wait-and-see approach. January 2026 CPI held at 2.9%. That is lower than the peaks seen in 2025, but it is still above the Bank’s 2% target. Because inflation remains sticky, the Bank has little reason to cut rates quickly, even if the economy is slowing. At the same time, growth looks weaker. The latest January jobs report showed a small gain of just 5,000 positions. This kind of mixed data adds uncertainty and gives the Bank a reason to wait for more information. The tug-of-war between persistent inflation and softer growth is likely to keep the Bank on the sidelines through the spring.

Trading Implications For Cad

This “no-change” policy backdrop can favor selling volatility in the Canadian dollar. One example is selling short-dated CAD/USD strangles, which benefit if the pair stays within a set range. Implied volatility looks high given the Bank’s clear message that it is likely to wait. In rates, it makes sense to be careful about positioning for near-term cuts when the Bank has signaled they are not close. In 2025, markets repeatedly priced in policy shifts too early. It is worth avoiding a repeat of that. Overnight Index Swaps still price a meaningful chance of a cut by mid-year, which may be too aggressive. USMCA renewal talks are also a key risk, and the minutes explicitly highlighted them. Recent comments from U.S. trade officials suggest a tougher stance, which increases uncertainty for Canadian exports. This supports the idea of selling short-term volatility, while still holding some longer-dated options to hedge against a surprise outcome. Create your live VT Markets account and start trading now.

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RBA Governor Michele Bullock said more interest rate rises are possible if inflation stays high. She said the board will keep relying on new data and will keep reviewing its forecasts. The RBA expects both headline and core inflation to remain above its 2–3% target band this year. This comes after the latest cash rate rise to 3.85%, with another increase possible if needed.

Inflation Expectations Reaccelerate

Australia’s February consumer inflation expectations rose by 0.4 percentage points to 5.0% on the 30% trimmed mean measure. This pushed expectations back above 5% after seven straight months below that level. The rise in expectations was cited as support for lifting the cash rate target to 3.85%. The article notes it was produced using an artificial intelligence tool and reviewed by an editor. There are signs that more rate hikes could follow if inflation does not ease. Governor Bullock has said inflation is still too high. This view is backed by the January 2026 monthly CPI, which came in at 3.6%. Ongoing price pressure is keeping the Australian dollar and local bond yields sensitive to new data. This looks similar to what we saw through 2025, when sticky inflation kept the RBA leaning hawkish. A key worry now is that consumer inflation expectations have risen again to 4.5% in the latest February report. The Board watches this closely because higher expectations can feed into future price rises.

Market Implications For Rates And FX

For rates traders, this points to a risk that yields move higher. Traders may look at positions that benefit from a steeper yield curve, or trades that assume the cash rate peaks above what markets currently price in. The recent move in the 10-year government bond yield above 4.30% supports this hawkish view. For currency markets, this backdrop can support the Australian dollar, especially against currencies where central banks are more dovish. Traders may consider strategies that benefit from AUD strength, such as buying AUD/USD call options. This gives upside exposure while limiting risk if the RBA unexpectedly turns more cautious. Create your live VT Markets account and start trading now.

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The United Kingdom NIESR GDP estimate for the three-month period fell to 0.3% in January, down from 4.296% in the previous reading. The latest figure points to a sharp slowdown over the three-month window. The release did not include a detailed breakdown or key drivers.

UK Growth Signal Turns Negative

The latest three-month GDP estimate shows a steep slowdown in the UK economy, falling to just 0.3%. This is a major drop from the growth seen at the end of 2025 and is a clear bearish signal. We should prepare for a period of weak growth and adjust strategies to match. This data also changes the outlook for Bank of England policy. Markets are likely to drop any remaining expectations of rate hikes and shift toward pricing in rate cuts to support growth. Overnight index swaps have already moved this way, with markets now pricing a 70% chance of a rate cut by May, up from 30% a week ago. As a result, we expect the Pound Sterling to stay under pressure against the US Dollar and the Euro. UK inflation in January was softer than expected at 2.4%, which gives the central bank more room to ease. This widens the policy gap with the US Federal Reserve, making short positions in GBP/USD more attractive. UK domestic equities, especially in the FTSE 250, also look exposed. Many of these firms depend on UK consumer demand, and this report suggests spending could fall. Buying put options on the FTSE 250 may be a direct way to position for a possible market decline in the weeks ahead.

Gilt Yield Outlook Improves

In contrast, we expect demand to increase for UK government bonds (gilts) as investors seek safety. A weaker economy and the likelihood of lower policy rates should support gilt prices. A long position in 10-year gilt futures is one way to benefit if yields fall. Create your live VT Markets account and start trading now.

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RBC Economics expects only minor changes to the US outlook. The near-term unemployment forecast is slightly lower, while the 2026 annual average still sits at 4.5%. Stronger-than-expected US GDP growth in the second half of 2025 appears to be driven by higher productivity, not by more hiring or longer hours. Early-2026 signs of a stabilising labour market have also eased fears of further weakening.

Data Delays And Inflation Signals

A partial US government shutdown has delayed annual benchmark population updates used in unemployment data, as well as the January Consumer Price Index release. Business surveys point to rising prices, and core goods inflation is expected to pick up further into Q2. The Federal Reserve is expected to keep policy unchanged in 2026, while leaving room for rate cuts later from current levels. The Fed held rates steady in January and is continuing with a meeting-by-meeting approach. Chair Powell said rates are “loosely neutral or somewhat restrictive” and noted that earlier cuts should balance risks on both sides of the Fed’s mandate. The fed funds target range is expected to stay at 3.5%–3.75% through 2026. Uncertainty around protectionist US trade policy remains, and earlier tariffs may still be feeding through with a lag. A US Supreme Court ruling on the legal status of IEEPA tariffs could change assumptions about tariff pass-through and, in turn, the outlook for core goods inflation.

Trading Approaches In A Steady Rate Regime

With the Federal Reserve expected to hold rates steady, we see opportunities in strategies that benefit from low interest-rate volatility. The fed funds range will likely stay between 3.5% and 3.75% for the rest of 2026, which should keep short-term rates relatively predictable. Selling near-term options on SOFR futures could be a way to collect premium, as long as economic data—such as last week’s steady 185,000 jobs added in January—does not force a shift in policy. Even so, major uncertainty remains just below the surface, so it may be sensible to buy protection against sharp moves. The CBOE Volatility Index (VIX) has been trading in a tight band near 14, which looks relatively cheap given the upcoming Supreme Court ruling on IEEPA tariffs and the delayed January CPI report. Buying VIX call options or out-of-the-money puts on major indices can offer a relatively low-cost hedge against a potential shock in the coming weeks. We expect equities may remain range-bound for now, pulled between stable rates and rising inflation concerns. This kind of market suits iron condors on the S&P 500, which can profit if the index stays within a defined price range. The January Producer Price Index, which rose an unexpected 0.5%, supports our view that core inflation will firm into the second quarter, making this a trade best suited to a shorter time window. Further out, the nomination of Kevin Warsh to take over as FOMC Chair in June adds a clear communication risk. Implied volatility is already slightly higher for options dated June and later, reflecting that transition. Traders should factor in the communication style Warsh may bring when building positions that run into the second half of the year. The Fed’s wait-and-see approach reflects the productivity-led GDP growth in the second half of 2025, which did not overheat the labour market. Since rates are described as “loosely neutral,” the bias still leans toward an eventual cut rather than a hike. This underlying dovish tilt suggests that in a sharp market sell-off, the Fed is more likely to support markets than to tighten policy. Create your live VT Markets account and start trading now.

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New US unemployment insurance claims fell to 227K in the week ending February 7. That was slightly above the 222K estimate, but below the prior week’s revised 232K, according to a US Department of Labor report released Thursday. The four-week moving average rose by 7,000 to 219.5K. The prior week’s revised average was 212.5K.

Labor Market Signals

Continuing jobless claims rose by 21K to 1.862M in the week ending January 31. The US Dollar was little changed, with the US Dollar Index (DXY) trading near 96.80. Even though the headline number looks calm, the details point to softening beneath the surface. The main signal is the higher four-week average and the rise in people staying on unemployment benefits. That suggests the strong labor market seen through 2025 may be losing momentum. The Federal Reserve pays close attention to trends like these. If labor conditions keep cooling, further monetary tightening becomes less likely in the near term. In 2025, markets repriced rate expectations quickly after small shifts in labor data. That makes the next inflation report even more important for what the Fed does next. Because the DXY barely moved, market-implied volatility remains low. We view that as a chance to buy protection while it is still relatively cheap, before the market fully prices in the added uncertainty. The CBOE Volatility Index (VIX), for example, is trading below 15—a level that often does not last when economic data starts to weaken.

Positioning And Risk Management

A weakening job market can weigh on corporate earnings and, in turn, major equity indices. With that in mind, it may be prudent to consider protective puts on broad market ETFs that track the S&P 500. Historically, rising continuing claims have often come before periods of weaker stock market performance. The dollar’s muted reaction may also offer a setup to position for future weakness if the employment trend worsens. A similar pattern appeared in late 2024, when early signs of a cooling economy eventually led to a clear downturn in the dollar. Options strategies that benefit from a move lower in the DXY toward the 94.00–95.00 range may look more appealing as this trend develops. Create your live VT Markets account and start trading now.

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After Takaichi won the LDP leadership election in early October last year, USD/JPY jumped. It closed the prior week near 147.70 and opened on Monday around 149.11. It then kept rising through the end of last month. The move was tied to the “Takaichi trade.” Markets expected policy to stay loose and keep the yen available for carry trades. That view started to fade late last year when the Bank of Japan raised rates, and Governor Ueda has kept a hawkish tone.

Policy Normalization And Rate Focus

The Bank of Japan has been moving its balance sheet and long-term interest rates back toward more normal settings. In March 2024, it changed its policy framework. From March 2024, the BoJ shifted the focus back to short-term rates as its main policy tool, while allowing markets to guide long-term rates. The Bank initially planned to slow monthly bond purchases by another JPY 400 bln each quarter starting in July 2024. Rabobank maintains a 12‑month USD/JPY forecast of 145, which implies a gradual yen recovery. This view also reflects rising JGB yields, stronger foreign demand, and expectations of more BoJ rate hikes this year. Markets are now rethinking the assumptions that pushed the dollar higher against the yen in late 2025. The so-called “Takaichi trade,” which began after the LDP leadership election in October last year, lifted USD/JPY from around 147.70. We still expect a gradual yen recovery toward 145 over the next 12 months.

Implications For Markets And Positioning

This shift reflects a more confident Bank of Japan (BoJ). After the rate hike late last year, Governor Ueda has stayed hawkish. This stance is now supported by Japan’s latest national core CPI for January, which came in at 2.4% and beat expectations. Early reports from the current “shunto” wage talks point to average pay increases above 4.5%, which also supports the case for more BoJ rate hikes this year. This is part of the broader policy normalization that began in March 2024. The BoJ moved back to targeting short-term rates and let markets guide long-term yields. Since then, the yield gap between US 10-year Treasuries and Japan’s 10-year JGBs has already narrowed by 25 basis points since the start of the year. That makes the yen more attractive to hold. On the other side of the pair, expectations for the US Federal Reserve are easing. Recent US data, including the latest Non-Farm Payrolls report showing job growth slowing to 155,000, has shifted Fed funds futures to price a 60% chance of a rate cut by June. This policy divergence adds a strong headwind for USD/JPY. For derivative traders, this backdrop points to positioning for a lower USD/JPY in the weeks and months ahead. Possible approaches include buying JPY calls or using bearish put spreads on USD/JPY to benefit from a downside move. Another option is selling out-of-the-money USD calls to collect premium while betting against a strong rise in the dollar. Create your live VT Markets account and start trading now.

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US continuing jobless claims came in above expectations for the week ending 30 January. Forecasts were 1.85 million, while the reported figure was 1.862 million.

Labor Market Signals

Continuing jobless claims rose to 1.862 million, which is higher than expected. This is a clear sign that the labor market may be softening faster than we thought. We see this as an important data point that could affect future Federal Reserve decisions. This weakness raises the chance that the Fed could cut interest rates sooner than planned. After the rate hikes through 2025, markets are now pricing in a 60%+ chance of a cut at the May meeting. It may be worth looking at strategies that can benefit from lower rates, such as buying calls on Treasury bond futures. A slowing economy can also hurt company profits and, in turn, weigh on major stock indices. For this reason, it may be sensible to add more downside protection to equity portfolios. Buying put options on the S&P 500 or Nasdaq 100 can help hedge against a possible market pullback in the coming weeks.

Market Volatility Outlook

Slower growth, combined with inflation that still lingers from last year, can create uncertainty in markets. We expect volatility to pick up from recent lows, especially since the VIX has traded below 16 for the past month. In this environment, buying VIX call options may offer value if market swings increase. Create your live VT Markets account and start trading now.

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Germany’s current account balance (not seasonally adjusted) rose to €16.1bn in December, up from €15.1bn in the prior period. That is an increase of €1.0bn month over month. The figures reflect Germany’s current account position on a non-seasonally adjusted basis. Germany’s higher current account surplus of €16.1bn in December suggests the export-driven economy is still holding up well. This strength can support demand for the euro from global trade partners. In the near term, that is generally positive for the currency. The data also supports a bullish view on EUR/USD. Recent U.S. data from January 2026 showed jobless claims edging up to 220,000, which may point to slower momentum in the U.S. economy. If growth trends diverge, the ECB may keep rates steady for longer than the U.S. Federal Reserve. One way to express this view is to buy near-term euro call options to position for upside. Germany’s export performance also matters for the DAX, which has large industrial and auto weightings. After the manufacturing slowdowns seen in parts of 2025, this improvement is a helpful sign. Selling put spreads on the DAX could be a way to benefit from improved stability while collecting premium. This trade update, along with German inflation staying firm at 2.4% in January, gives the ECB less reason to cut rates soon. By contrast, the Bank of England is dealing with a sharper slowdown, which could weigh on the pound. That makes a stronger EUR/GBP a reasonable trade idea for the coming weeks. The steady surplus through late 2025 also showed that Germany’s industrial sector managed high energy costs better than many expected. That resilience now looks more durable. This context supports the view that the current trend is more than a seasonal effect.

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