The Australian Dollar (AUD) remains under pressure against the US Dollar (USD) after the release of China’s RatingDog Services Purchasing Managers’ Index on Monday, which eased to 52.0 in December from 52.1 in November.
The data followed last week’s report showing China’s Manufacturing PMI ticking up to 50.1 from 49.9. Given Australia’s strong trade links with China, even modest shifts in Chinese economic momentum tend to have a direct impact on AUD sentiment.
Despite near-term weakness, the AUD could find underlying support from rising expectations that the Reserve Bank of Australia may be forced to tighten policy further.
Markets are focused on Australia’s Q4 CPI report due on January 28, with analysts noting that a firmer-than-expected core inflation print could prompt a rate hike at the RBA’s February 3 meeting. RBA Governor Michele Bullock recently stated that while a hike was not explicitly considered, the board discussed scenarios under which rates may need to rise in 2026.
US dollar supported by safe-haven demand
The AUD/USD pair continues to edge lower as the US Dollar benefits from renewed safe-haven demand amid escalating geopolitical tensions. The USD has strengthened following reports of the United States’ capture of Venezuelan President Nicolás Maduro, a development that has heightened global risk aversion and favored the greenback.
The US Dollar Index, which tracks the USD against six major currencies, trades around the 98.60 area, with investors awaiting the release of the ISM Manufacturing PMI later in the day. According to media reports, the Trump administration launched a large-scale military strike against Venezuela without congressional approval and signaled that Washington would oversee the country until a controlled political transition is achieved. Additional remarks from President Donald Trump, including warnings of further intervention and sharp rhetoric toward Colombia, Mexico, and Cuba, have added to market unease.
Fed outlook and China data in focus
Markets continue to price in two additional Federal Reserve rate cuts in 2026, amid expectations that President Trump will nominate a new Fed chair when Jerome Powell’s term ends in May.
Such a move is seen as potentially tilting US monetary policy toward lower interest rates. Minutes from the Fed’s December meeting suggested policymakers are inclined to pause further cuts if inflation continues to ease, although some officials favor keeping rates unchanged for a period after this year’s three reductions.
Meanwhile, Chinese official data offered a mixed picture. The Manufacturing PMI rose to 50.1 in December from 49.2, beating market expectations, while the Non-Manufacturing PMI improved to 50.2 from 49.5. Although the figures point to stabilization, they have so far failed to lift broader risk sentiment or provide meaningful support to the AUD.
RBA inflation outlook and AUD/USD technical levels
RBA meeting minutes reinforced that policymakers remain ready to tighten policy should inflation prove more persistent than anticipated, placing increased emphasis on the upcoming Q4 CPI data.
Australia’s headline inflation stood at 3.8% in October, well above the RBA’s 2–3% target band, prompting markets to increasingly price in a potential rate hike as early as February 2026. Major Australian banks project the cash rate could rise to 3.85% at the RBA’s first policy meeting of the year.
From a technical perspective, AUD/USD trades near the 0.6680 area, hovering around the nine-day Exponential Moving Average. The pair sits close to the lower boundary of an ascending channel, suggesting that a decisive break could define the next directional move. The 14-day RSI near 59.6 indicates bullish momentum remains intact, with room for further upside.
A sustained move above the nine-day EMA could open the door toward the 0.6700 psychological level and December’s peak near 0.6727, while a break below the channel would expose the pair to deeper losses toward the six-month low around 0.6414.
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