Australian Dollar advances as US Dollar struggles on easing geopolitical concerns
- Australian Dollar gains as expectations grow for Reserve Bank of Australia's interest rate hikes.
- Australian Financial Review's poll suggests sticky inflation fueling expectations of at least two more RBA rate hikes.
- The US Dollar weakens amid easing concerns about US-Venezuela tensions.
The Australian Dollar (AUD) advances against the US Dollar (USD) on Tuesday following two days of gains. Traders await Australia's November Consumer Price Index (CPI) release due on Wednesday.
The AUD could find support following a recent survey of leading economists cited by the Australian Financial Review (AFR), which suggests the Reserve Bank of Australia (RBA) may not be done tightening this cycle. The poll indicates inflation is expected to remain stubbornly elevated over the coming year, fueling expectations of at least two additional rate hikes.
The AUD/USD pair rises as the US Dollar (USD) loses ground, with concerns about a broader geopolitical escalation easing. Markets are largely brushing aside tensions between the United States (US) and Venezuela.
US Dollar declines as geopolitical escalation eases
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is extending its losses and trading around 98.30 at the time of writing.
- Traders are awaiting a series of key US economic releases this week, including the Nonfarm Payrolls (NFP) report, for signals on the monetary policy outlook. The consensus forecast sees NFP rising by 55,000 jobs.
- The US launched a large-scale military strike against Venezuela on Saturday. US President Donald Trump said Venezuelan President Nicolas Maduro and his wife were captured and flown out of the country.
- Venezuelan President Maduro, on Monday, pleaded not guilty to US charges in a narco-terrorism case, setting the stage for an unprecedented legal battle with major geopolitical implications, according to Bloomberg.
- The Guardian reported on Monday that President Trump made remarks about Colombia’s leadership, floated the idea of “Operation Colombia,” criticized Mexico for not getting its act together, and suggested Cuba appeared close to collapse.
- The US ISM Manufacturing Purchasing Managers’ Index (PMI) declined for a third straight month, slipping to 47.9 in December 2025, the lowest since October 2024, from 48.2 in November and below expectations of 48.3. The data indicate a faster contraction in US manufacturing activity, driven by declines in production and inventories.
- Traders expect two additional Federal Reserve rate cuts in 2026. Markets are bracing for US President Donald Trump to nominate a new Fed chair to replace Jerome Powell when his term ends in May, a move that could tilt monetary policy toward lower interest rates.
- Federal Open Market Committee (FOMC) December Meeting Minutes suggested last week that most participants judged that it would likely be appropriate to stand on further rate cuts if inflation declined over time. Meanwhile, some Fed officials said it might be best to leave rates unchanged for a while after the committee made three rate reductions last year to support the weakening labor market.
- China’s RatingDog Services Purchasing Managers’ Index (PMI), released on Monday, declined to 52.0 in December from 52.1 in November. RatingDog reported last week that Manufacturing PMI climbed to 50.1 in December from 49.9 in November. It is important to note that any change in the Chinese economy could impact the AUD as China and Australia are close trading partners.
- The RBA December Meeting Minutes indicated that policymakers stand ready to tighten policy if inflation fails to ease as expected, placing increased focus on the Q4 CPI report due January 28. Analysts note that a stronger-than-expected Q4 core inflation reading could trigger a rate hike at the RBA’s February 3 meeting.
Australian Dollar eyes 15-month highs after breaking above 0.6700
AUD/USD is trading around 0.6720 on Tuesday. The technical analysis of the daily chart indicates that the pair rebounds from the lower boundary of the ascending channel pattern, suggesting a strengthening bullish bias. The 14-day Relative Strength Index (RSI) at 65.64 suggests bullish momentum, with room for further upside toward overbought conditions.
The AUD/USD pair could test the immediate barrier at 0.6727, the highest level since October 2024, reached on December 29. Further gains could allow the pair to approach the upper boundary of the ascending channel near 0.6820.
On the downside, the AUD/USD pair may find the initial support at the nine-day Exponential Moving Average (EMA) of 0.6693, aligned with the lower ascending channel boundary. A break below the channel could expose the AUD/USD pair to the area around the six-month low near 0.6414, recorded on August 21.
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.09% | -0.10% | 0.03% | -0.04% | -0.30% | -0.30% | -0.02% | |
| EUR | 0.09% | -0.01% | 0.11% | 0.06% | -0.21% | -0.20% | 0.07% | |
| GBP | 0.10% | 0.00% | 0.13% | 0.07% | -0.20% | -0.19% | 0.08% | |
| JPY | -0.03% | -0.11% | -0.13% | -0.05% | -0.32% | -0.32% | -0.03% | |
| CAD | 0.04% | -0.06% | -0.07% | 0.05% | -0.27% | -0.27% | 0.01% | |
| AUD | 0.30% | 0.21% | 0.20% | 0.32% | 0.27% | 0.00% | 0.28% | |
| NZD | 0.30% | 0.20% | 0.19% | 0.32% | 0.27% | -0.01% | 0.27% | |
| CHF | 0.02% | -0.07% | -0.08% | 0.03% | -0.01% | -0.28% | -0.27% |
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).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Author
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
