The AUDUSD currency pair is expected to continue trading in a flat trend, albeit with a cautiously bullish bias.
Australia’s labor market report—scheduled for January 22—will be this week’s key driver. Strong data could push prices above the current yearly highs. The Aussie is now getting support from a weaker US dollar and projections of a sooner-than-expected rate cut by the Federal Reserve (Fed). Furthermore, Australia’s export-oriented economy, heavily reliant on iron ore and copper, thrives on increased global commodity demand, which underpins AUD.
Monetary policy divergence between the US Fed and the Reserve Bank of Australia (RBA) is another tailwind for AUDUSD. In 2024–2025, central banks were on the same page regarding borrowing costs, but their ways parted by the start of 2026.
Following the Fed's aggressive cuts last year, current interest rates are sitting in the 4.25–4.50% range—significantly below the previous peak near 5.5%. Markets anticipate another reduction or a potential pause, driven by cooling US labor statistics and overall political uncertainty.
Meanwhile, the RBA is now holding its rate at 3.6%, the lowest level since April 2023. However, sticky inflation, with October’s figures at 3.8%, and robust GDP growth are forcing officials to remain pretty hawkish. Traders predict a 22–30% probability of a rate hike at the RBA’s February meeting.
This divergence stems from differing economic conditions. Steady consumer demand and a workforce deficit create a more pressing inflationary environment in Australia compared to the US.
We should also take China into account. At the end of 2025, the world’s second-largest economy surged to 5.2%. Along with consistently high iron ore prices (above $130 per ton), these factors provide significant support to the Australian GDP.
The Fed-RBA monetary divergence is favorable for AUD. Traders are starting to use the Aussie as a tool for carry trade strategies, as the expected rate hike by the RBA against the backdrop of the Fed’s dovish rhetoric increases the yield from holding AUDUSD.
The spread between the two countries' 10-year bond yields has recently reached a multi-year high of 60 basis points, further stimulating capital inflows into Australian assets.
The overall recommendation is to buy AUDUSD from 0.6650. Profits should be taken at the level of 0.6860. Stop Loss could be set at 0.6460.
The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
