AUD/USD attracts buyers amid modest USD weakness, Australian inflation looms

The AUD/USD rose by 0.35% to 0.6270 on Tuesday, marking its fourth consecutive day of gains. The pair drew support from a slight downtick in the US Dollar amid uncertainty surrounding US-China trade relations and tariff policies. However, the prospects of slower Federal Reserve rate cuts and elevated US Treasury yields continue to limit the Aussie’s upside potential. Following strong US data, the pair retreated and market now await inflation data from Australia to be released on Wednesday’s Asian session.

Fundamental overview

The Aussie trims daily gains after the USD rebounded on the back of strong US economic data. The US Bureau of Labor Statistics (BLS) reported that job openings increased to 8.09 million in November, exceeding expectations of 7.7 million and the prior month’s 7.83 million. Meanwhile, the ISM Services PMI rose to 54.1 in December from 52.1 in November, beating market estimates of 53.3. The Prices Paid Index, a measure of inflation, climbed significantly to 64.4 from 58.2, highlighting persistent price pressures in the service sector.

Despite this, the USD remains under pressure due to uncertainty surrounding President-elect Donald Trump’s trade policies. Reports suggested that new tariffs might target sectors critical to US national and economic security, though Trump denied these claims via his Truth Social platform. This ambiguity weighed on the Greenback, allowing the AUD/USD to extend its recovery.

Meanwhile, the Federal Reserve’s hawkish stance continues to underpin the US Dollar’s broader strength. The Fed has signaled a slower pace of rate cuts in 2025, with policymakers expressing concerns over stalled progress in the disinflation trend and robust labor market conditions. Elevated US bond yields also contribute to the Greenback’s resilience, while fears of renewed US-China trade tensions and the Reserve Bank of Australia’s dovish pivot cap the Aussie’s potential gains.

Technical overview

The AUD/USD climbed to 0.6270 on Tuesday, with technical indicators showing signs of recovery. The Relative Strength Index (RSI) rose to 44, escaping oversold levels, while the MACD histogram prints rising green bars, signaling improving bullish momentum. These indicators suggest the pair may be staging a recovery; however, a break above the 20-day Simple Moving Average (SMA) is needed to confirm a sustained bullish trend.

Immediate resistance is seen at 0.6280, with a break above potentially targeting 0.6320. On the downside, support lies at 0.6230, with further losses exposing the psychological 0.6200 level. While the pair’s technical outlook improves, caution remains warranted as broader market dynamics and upcoming US data releases could impact sentiment.