The Federal Reserve's policy shift hints at deeper implications, and the Australian dollar is expected to enter an upward cycle.

Inflation Concerns Behind Liquidity Injection

The Federal Reserve’s December decision has been implemented, with a 25 basis point cut to the 3.50%-3.75% range, but market reactions have not been as strong as expected. The most notable aspect is not the rate cut itself, but a technical operation—the Reserve Management Purchase (RMP) program has officially launched.

This plan means the Federal Reserve will purchase $40 billion worth of short-term government bonds over the next 30 days. Although it appears to be a small-scale operation, it reflects a key signal: liquidity is once again a focus. Unlike the market’s usual understanding of quantitative easing, RMP focuses on short-term notes rather than long-term bonds, aiming to ensure sufficient liquidity supply in the financial system.

It is worth noting that the Fed dot plot shows only one more rate cut expected in 2026, far below the market’s previous expectation of two. This indicates that the rate-cutting cycle may be nearing its end. At the same time, the rare three dissenters against the rate cut this year highlight deep divisions within the Fed regarding inflation and employment goals.

With liquidity being injected, commodity markets are the most responsive. Silver has already gained 120% year-to-date, with the current trading price reaching $64.3, hitting a new all-time high. Precious metals, crude oil, copper, and other industrial commodities are rising together, and inflation risks are brewing.

Commodity Currency Opportunities in the Australian Economy

Against this backdrop, the Australian dollar, as a typical commodity currency, presents investment opportunities. Australia is the world’s largest iron ore producer, with over 8% of GDP coming from mining. When commodity prices rise, export income increases, directly benefiting the country’s economic performance.

The Reserve Bank of Australia’s policy stance is worth noting. Although employment data in November showed a slight decline (unemployment rate held at 4.3%), RBA Governor Lowe explicitly stated that the easing cycle has ended, and the focus will shift to assessing the risks of inflation rising again. November CPI data was 3.8%, well above the RBA’s 2-3% target, and inflation is not expected to return to the target range until mid-2027.

This suggests that the RBA may face pressure to raise interest rates. The market expects the RBA to start a rate hike cycle in February 2026. In contrast, the Fed is cutting rates, and this policy divergence provides upward momentum for USD/AUD.

Changing Global Macro Environment

In addition to differences in commodity prices and monetary policies, macroeconomic environments are also changing. The Fed has raised its 2026 GDP growth forecast to 2.3%, indicating an improved economic outlook and reduced stagflation risk.

More importantly, the U.S. faces a delicate situation: U.S. national debt has exceeded $30 trillion for the first time, doubling in the short term. Under these circumstances, there is an impossible trinity between tariffs, fiscal deficits, and inflation. Inflation is essentially a tool for debt dilution, which poses a threat to dollar credibility.

As inflation expectations strengthen, trade tensions between China and the U.S. are expected to ease. This is generally positive for risk assets, and the Australian dollar, as a risk currency, is also likely to benefit from the global economic improvement.

Technical Confirmation of AUD Upside Potential

From the weekly chart, AUD/USD has experienced a substantial consolidation around 0.6500, and has now broken through the 0.6600 level, showing a clear bottoming pattern. Market sentiment is strongly bullish.

If AUD/USD can effectively stabilize above 0.6600, it may challenge the key resistance at 0.6900. Investors can consider 0.6550 as a medium-term support/resistance level; a break below this indicates a failed rebound.

The technical strength confirms the fundamental logic: rising commodity prices, widening monetary policy divergence, and improving global macroeconomic conditions—all these factors are driving a new upward cycle for the Australian dollar.