US Dollar Surge Pressures Australian Currency as RBA Tightening Bets Grow

Technical Breakdown: AUD/USD Breaks Below Key Support Level

The Australian Dollar is on its sixth consecutive losing day against the US Dollar, with AUD/USD trading below the critical 0.6600 support zone. Daily chart analysis reveals the pair has slipped beneath the ascending channel and is now positioned below the nine-day Exponential Moving Average (EMA), signaling deteriorating short-term momentum.

The downside risks remain pronounced. If weakness persists, AUD/USD could test the 0.6500 psychological level next, followed by the six-month low of 0.6414 established on August 21. Conversely, a stabilization attempt would need to reclaim the nine-day EMA around 0.6619 to revive bullish sentiment. Should buying pressure emerge, the pair could retest the three-month high of 0.6685 and potentially challenge 0.6707, the highest since October 2024, with the upper channel boundary around 0.6760 offering further resistance.

US Dollar Strengthens Amid Fading Rate Cut Expectations

The broader weakness in AUD/USD reflects a fundamental shift in Federal Reserve policy expectations. The US Dollar Index (DXY), tracking the greenback against six major currencies, remains anchored near 98.40 as markets price in fewer near-term rate cuts.

Recent economic data has clouded the case for additional Fed easing. November’s US jobs report delivered mixed signals: while payrolls grew 64,000, marginally above expectations, October figures received a sharp downward revision. The unemployment rate climbed to 4.6%, the highest level since 2021, indicating gradual labor market softening. Meanwhile, retail sales came in flat month-over-month, suggesting consumer momentum is waning.

However, inflation pressures remain sticky. Atlanta Fed President Raphael Bostic noted that multiple surveys point to elevated input costs and firms protecting margins through price increases. He cautioned that “price pressures extend beyond tariffs” and warned against premature victory declarations, penciling in 2026 GDP growth around 2.5%.

The Federal Open Market Committee remains divided on 2026 rate trajectories. The median official forecast suggests just one reduction next year, with some hawks advocating no further cuts whatsoever. Traders, however, expect two cuts. The CME FedWatch tool currently prices an implied 74.4% probability of a January rate hold, up from approximately 70% a week prior.

RBA Hawkish Bias Supports AUD Despite Currency Weakness

Counterintuitively, the Australian Dollar’s fundamental backdrop remains constructive. Consumer Inflation Expectations accelerated to 4.7% in December from November’s three-month trough of 4.5%, reinforcing the Reserve Bank of Australia’s hawkish positioning. This inflation stickiness—embedded in a capacity-constrained economy—has prompted Commonwealth Bank of Australia and National Australia Bank to bring forward their projected RBA tightening timeline beyond prior estimates.

Rate swap markets now price a 28% probability of an RBA hike by February, climbing to nearly 41% for March, with August almost fully priced in. The RBA’s hawkish hold at its final 2025 meeting last week appears to have shifted market expectations toward earlier policy normalization.

China’s Weak Data Weighs on Asian Sentiment

Regional economic headwinds are adding pressure to antipodean assets. China’s November Retail Sales rose just 1.3% year-over-year, significantly undershooting the 2.9% consensus and October’s 2.9% actual reading. Industrial Production managed 4.8% growth, below the 5.0% forecast and prior 4.9%, while Fixed Asset Investment disappointed at -2.6% year-to-date, missing the expected -2.3% and deteriorating from October’s -1.7%.

Australia’s employment data painted a concerning picture last week. The Unemployment Rate held steady at 4.3% in November, beating the 4.4% consensus, but Employment Change swung to -21.3K from October’s upwardly revised 41.1K, well below the 20K forecast. Manufacturing PMI edged up marginally to 52.2 in December from 51.6, but Services PMI declined to 51.0 from 52.8, with the Composite index falling to 51.1 from 52.6.

Currency Cross Performance Summary

Today’s currency flow data reveals the Australian Dollar recording the weakest performance against the Japanese Yen among major pairs. The AUD depreciated 0.19% versus USD, while the US Dollar demonstrated broad-based strength, appreciating marginally against most counterparts. The New Zealand Dollar underperformed even the Australian currency, declining 0.26% against the Swiss Franc in the session’s most extreme move.