The Australian Dollar extended its decline against the US Dollar on Thursday, marking a sixth consecutive session of losses for AUD/USD. The pair remains under pressure despite growing market expectations that the Reserve Bank of Australia could begin raising interest rates as early as February.
The Aussie showed limited reaction to Australia’s Consumer Inflation Expectations, which rose to 4.7% in December from November’s three-month low of 4.5%. The uptick reinforces the RBA’s hawkish bias, but it has so far failed to translate into sustained support for the currency, as investors remain cautious amid global macro uncertainty.
Market pricing increasingly reflects the possibility of an earlier tightening cycle from the RBA. Both Commonwealth Bank of Australia and National Australia Bank have revised their forecasts to anticipate a sooner start to rate hikes, citing persistent inflation pressures in a capacity-constrained economy. These revisions followed the RBA’s hawkish decision to keep rates unchanged at its final meeting of 2025. Interest-rate swaps currently imply a 28% probability of a rate hike in February, rising to nearly 41% in March, with an August increase almost fully priced in.
US Dollar finds support as Fed rate cut bets fade
The US Dollar Index, which tracks the greenback against a basket of six major currencies, is holding firm near 98.40, lending additional downside pressure to AUD/USD.
The dollar is benefiting from cautious positioning ahead of the delayed release of the US Consumer Price Index report later on Thursday, which is expected to provide fresh insight into inflation dynamics. A resilient inflation outlook has contributed to fading expectations of near-term Federal Reserve rate cuts.
Fed Governor Christopher Waller reiterated his dovish stance during a CNBC forum, emphasizing that policymakers can afford to be patient while inflation remains elevated. “There’s no rush to get down. We can steadily bring the policy rate down toward neutral,” Waller said.
According to the CME FedWatch tool, markets are now pricing in a 75.6% probability that the Fed will hold rates steady at its January meeting, up from nearly 74% a week earlier.
Recent US data painted a mixed picture of the economy. November Nonfarm Payrolls rose by 64,000, slightly beating forecasts, though October figures were sharply revised lower. The unemployment rate climbed to 4.6%, its highest level since 2021, signaling a gradually cooling labor market. Meanwhile, retail sales were flat on the month, reinforcing concerns that consumer demand is losing momentum.
Atlanta Fed President Raphael Bostic said earlier this week that the latest jobs report did not alter his outlook and that he preferred to leave rates unchanged at the most recent policy meeting. Fed officials remain divided over the path of monetary policy next year, with the median projection pointing to just one rate cut in 2026, even as traders continue to price in two cuts next year.
China data and domestic indicators add to AUD pressure
Weak economic data from China, Australia’s largest trading partner, also weighed on the Australian Dollar. China’s Retail Sales rose just 1.3% year-on-year in November, well below expectations and the previous month’s reading. Industrial Production growth slowed to 4.8%, while Fixed Asset Investment remained deeply negative on a year-to-date basis.
At home, Australia’s business activity data showed mixed signals. The preliminary S&P Global Manufacturing PMI improved to 52.2 in December, but Services PMI fell to 51.0, dragging the Composite PMI down to 51.1.
Labor market data from the Australian Bureau of Statistics showed the unemployment rate holding steady at 4.3% in November, slightly better than expected. However, employment fell by 21,300, reversing the strong gains seen in October and underscoring some softness in hiring momentum.
AUD/USD breaks below key support near 0.6600
From a technical perspective, AUD/USD is trading below the 0.6600 level, having slipped beneath a key confluence support zone. On the daily chart, the pair has dropped below the ascending channel, signaling a weakening bullish bias. Trading below the nine-day Exponential Moving Average further highlights fading short-term momentum.
On the downside, the pair could extend losses toward the psychological 0.6500 level, with the six-month low at 0.6414, set on August 21, emerging as a deeper support area.
On the upside, a recovery toward the nine-day EMA at 0.6619 would be the first sign of stabilization. A move back into the ascending channel could revive bullish sentiment and open the way toward the three-month high at 0.6685, followed by 0.6707, the highest level since October 2024. A stronger rebound could see the pair testing the upper boundary of the ascending channel near 0.6760.
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