AUD/USD gains as hawkish RBA supports ahead of US jobs data

AUD/USD extends its gains for a second consecutive day, trading around 0.7090 on Monday at the time of writing, up 0.93% on the day. The pair benefits from renewed demand for the Australian Dollar (AUD), a currency sensitive to the global cycle, as concerns about potential disruption caused by artificial intelligence fade, supporting an improvement in investor sentiment.

The Australian Dollar also finds notable support from recent comments by Reserve Bank of Australia (RBA) Governor Michele Bullock. She stated that the board raised the policy rate because the Australian economy is more capacity-constrained than previously assessed, implying the need for a tighter monetary policy stance. She added that the central bank needs to dampen demand growth unless supply capacity can expand more rapidly, a message perceived as clearly hawkish by markets.

On the Australian macroeconomic front, household spending fell 0.4% MoM in December, following a 1% increase in the previous month, and missed market expectations for a modest rise. On a yearly basis, spending growth slowed to 5%, its weakest pace in four months, highlighting the impact of persistent cost-of-living pressures and elevated interest rates.

The international backdrop also supports the AUD/USD pair. According to Bloomberg, Iranian President Masoud Pezeshkian described the recent nuclear talks with the United States (US) as a step forward, despite ongoing differences. These signals, combined with news of another meeting planned later in the week, contribute to a mild easing of geopolitical tensions and support risk-sensitive assets.

On the US side, the US Dollar (USD) remains under pressure. Investors remain wary of the unpredictability of US President Donald Trump’s trade policy, his repeated attacks on the independence of the Federal Reserve (Fed), and growing concerns over the US fiscal outlook. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 97.00 at the time of press, extending its decline for a second consecutive day.

Expectations of monetary easing by the Federal Reserve are reinforcing the weakness of the US Dollar. Markets are currently pricing in around two rate cuts this year, expectations that have been reinforced by recent indicators pointing to a cooling US labor market. The Job Openings and Labor Turnover Survey (JOLTS) showed a sharp decline in job openings in December, while private payroll growth came in below forecasts.

Attention now turns to the delayed release of the US January employment report, due on Wednesday, as well as upcoming inflation data. These releases are likely to play a key role in shaping the near-term direction of the US Dollar and, by extension, the AUD/USD pair.