AUD/USD holds gains above 0.7100 with US jobs, Australian inflation eyed

AUD/USD steadies right below three-year highs at 0.7128.
Downbeat US Retail Sales and lower employment costs increased pressure on the USD on Tuesday.
On Wednesday, all eyes are on January's US Nonfarm Payrolls report.

Guillermo Alcala FXStreet

The Aussie Dollar (AUD) has ticked down from fresh three-year highs at 0.7128 against the US Dollar, but remains steady above previous highs of 0.7095, as investors brace for the US Non-farm Payrolls release, due later on the day, and the Australian Consumer Inflation Expectations report, on Thursday.

The Greenback is struggling to regain lost ground following downbeat US Retail Sales and softer labour costs data on Tuesday, which have provided further reasons for the US Federal Reserve's dovish party to call for immediate rate cuts.

US retail consumption stagnated in December, according to data from the US Census Bureau, against expectations of a 0.4% growth and following a 0.6% monthly increase in November. The Retail Sales Control Group, also known as the “core” Retail Sales, contracted 0.1%, and November’s reading was revised down to a 0.2% rise from the 0.4% previously estimated.

US employment costs hint at a cooling labour market

Also on Tuesday, figures released by the Bureau of Labor Statistics (BLS) revealed that the US Employment Cost Index eased to 0.7% in the last quarter of 2025, from 0.8% in the previous quarter. In 2025, labour costs grew at their slowest annual rate of the last four years. These figures point to lower inflationary pressures but also to a softening labour market.

On Wednesday, the focus shifts to the US Nonfarm Payrolls (NFP) report, which is expected to show a 70K increase in net jobs, with the unemployment rate steady at 4.4% and wage growth confirming the disinflationary trends, with a 3.6% yearly rise, down from 3.8% in December.

In Australia, investors will be attentive to the Consumer Inflation Expectations figures, due on Thursday, to corroborate the comments from the Reserve Bank of Australia’s (RBA) Deputy Governor. Andrew Hauser. Hauser said on Tuesday that inflation is too high and that the bank is ready to do whatever is needed to bring it down to the target, which provided an additional boost to the Aussie.

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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