Australian Dollar declines despite inflation boosts cautious RBA policy bets
|- Australian Dollar stays subdued after Australia’s December CPI data was released on Wednesday.
- Australia’s December inflation rose to 3.6% year-over-year, matching forecasts, after a revised 3.5% previously.
- The “Sell America” theme persists, pushing DXY downwards ahead of the Fed decision.
The Australian Dollar (AUD) edges lower against the US Dollar (USD) on Wednesday after registering over 1% gains in the previous session. The AUD/USD pair depreciates as the AUD remains subdued following the release of Australia’s Consumer Price Index (CPI) data for December, reported by the Australian Bureau of Statistics (ABS).
Australia’s CPI rose by 3.6% year-over-year (YoY) in December, following a 3.5% (revised from 3.4%) increase prior. The market consensus was for 3.6% growth in the reported period. Australia’s RBA Trimmed Mean inflation increased to 0.2% month-over-month (MoM) and 3.3% year-over-year (YoY). The monthly CPI rose 1.0% in December, up from 0% previously and above the 0.7% forecast.
Australia’s headline inflation is remaining above the Reserve Bank of Australia’s (RBA) 2–3% target, reinforcing the likelihood of a tighter RBA monetary policy, supported by recent PMI data and employment data.
US Dollar edges higher ahead of Fed policy decision
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is rising after registering more than 1% losses in the previous session and trading near 96.10 at the time of writing. The “Sell America” narrative continues to dominate sentiment, with the DXY sliding to its lowest level since February 2022 as investors position ahead of the Federal Reserve (Fed) policy decision.
- The Federal Reserve is widely expected to keep rates unchanged at 3.50%–3.75% at the end of its two-day meeting on Wednesday, following three consecutive rate cuts in 2025. Markets will focus on the post-meeting press conference for guidance on the policy outlook in the months ahead.
- Jonas Goltermann, deputy chief markets economist at Capital Economics, said in a note, “While there are several potential culprits for the dollar’s drop, the main driver is the fallout from reports that the US Treasury is considering direct currency intervention."
- US President Donald Trump stated that the value of the USD is "great" when asked whether he thought it had declined too much. His comments exert some selling pressure on the US Dollar.
- US ADP Employment Change 4-week average was reported at 7.75K, down from the previous report of 8K.
- Trump warned he would impose 100% tariffs on Canadian goods if Ottawa were to strike a trade deal with China, the BBC reported over the weekend. In response, Canada’s Prime Minister Mark Carney said on Sunday that Canada has no plans to pursue a free trade agreement with China, clarifying that his recent understanding with Beijing only reduced tariffs in a few sectors that had been hit recently.
- Australia's S&P Global Manufacturing Purchasing Managers Index (PMI), which came in at 52.4 in January versus 51.6 prior. Services PMI climbed to 56.0 in January from the previous reading of 51.1, while the Composite PMI climbed to 55.5 in January versus 51.0 prior.
- Employment Change, which arrived at 65.2K in December, swung from 28.7K job losses (revised from 21.3K) in November, compared with the consensus forecast of 30K. Meanwhile, the Unemployment Rate declined to 4.1% from 4.3% prior, against the market consensus of 4.4%.
Australian Dollar pulls back from confluence resistance zone around 0.7000
The AUD/USD pair is trading around 0.6990 on Wednesday. Daily chart analysis indicates that the pair is rising within the ascending channel pattern, indicating a persistent bullish bias. The 14-day Relative Strength Index (RSI) at 80.27 is overbought, signaling stretched momentum.
The AUD/USD pair tested the confluence resistance zone around the upper boundary of the ascending channel near the 0.7022, the highest level since February 2023, recorded on Wednesday. On the downside, the primary support lies at the nine-day Exponential Moving Average (EMA) at 0.6871, aligned with the lower ascending channel boundary. A break below the channel would weaken the bullish bias and target the 50-day EMA of 0.6701.
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.24% | 0.25% | 0.11% | 0.10% | 0.17% | 0.39% | 0.35% | |
| EUR | -0.24% | 0.00% | -0.15% | -0.15% | -0.07% | 0.15% | 0.11% | |
| GBP | -0.25% | -0.01% | -0.15% | -0.15% | -0.08% | 0.14% | 0.10% | |
| JPY | -0.11% | 0.15% | 0.15% | -0.01% | 0.07% | 0.28% | 0.25% | |
| CAD | -0.10% | 0.15% | 0.15% | 0.00% | 0.07% | 0.29% | 0.25% | |
| AUD | -0.17% | 0.07% | 0.08% | -0.07% | -0.07% | 0.22% | 0.18% | |
| NZD | -0.39% | -0.15% | -0.14% | -0.28% | -0.29% | -0.22% | -0.04% | |
| CHF | -0.35% | -0.11% | -0.10% | -0.25% | -0.25% | -0.18% | 0.04% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.