AUD/USD mixed despite firm Australian inflation ahead of Fed & RBA decisions
AUD/USD Analysis
The Reserve Bank of Australia (RBA) made a hawkish shift when it held rates last month, effectively shutting the door to further easing and raising the prospect of a rate hike. During the post-decision press conference, Governor Bullock was clear, saying, "I don't think there are interest rate cuts on the horizon for the foreseeable future", while noting that policymakers discussed the circumstances that could justify a hike in 2026.
An improving labour market, economic resilience, and persistent inflation – with risks tilted to the upside - have driven this shift in the RBA's stance. Despite some mixed readings, today's CPI release shows continued price pressures, strengthening the case for a rate increase ahead of next week's RBA decision. Headline and underlying inflation both accelerated in the fourth quarter compared with a year earlier, reaching the highest levels in over a year.
AUD/USD extended its advance after the CPI release, hitting nearly three-year highs. With the RBA's next move expected to be a rate increase and markets betting on two cuts by the Fed, the monetary policy differential favours the Aussie. Meanwhile, the USDOLLAR has been weakening on expectations of lower rates, concerns over Fed independence, and broader de-dollarisation trends linked to disruptive trade policies and fiscal worries. Asked about the decline, President Trump said, "I think it's great", effectively embracing a weaker dollar. [1]
These developments support further upside in AUD/USD, bringing the 2023 peak into focus. Nonetheless, the pair is softer today and the move looks technically stretched as the greenback attempts a recovery, creating scope for pullbacks towards and below 0.6900.
The Fed has adopted a cautious stance amid macroeconomic uncertainty, and any hawkish tilt later today could disappoint markets and weigh on the pair. Moreover, the RBA has opened the door to a hike, but a move may still be premature as the Australian economy continues to face challenges.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
References
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