The Australian Dollar (AUD) extends its advance against the US Dollar (USD), climbing to a fresh 14-month high of 0.6727 on Monday. The AUD/USD pair remains well supported as markets increasingly price in the possibility of further policy tightening by the Reserve Bank of Australia (RBA), underpinned by persistent inflation pressures and a resilient domestic outlook.
RBA minutes fuel hawkish expectations
The RBA’s December Meeting Minutes revealed that policymakers are growing less confident that current monetary settings are sufficiently restrictive. The board reiterated its readiness to tighten policy further should inflation fail to ease as projected, placing renewed focus on the fourth-quarter CPI report scheduled for January 28. Market analysts note that a stronger-than-expected core inflation reading could pave the way for a rate hike at the RBA’s February 3 meeting.
Australia’s inflation dynamics continue to reinforce this view. Headline inflation rose to 3.8% in October 2025 from 3.6% in September, remaining above the RBA’s 2–3% target band. In addition, Consumer Inflation Expectations increased to 4.7% in December from November’s three-month low of 4.5%, lending further support to the central bank’s hawkish bias. As a result, markets are increasingly pricing in a rate hike as early as February 2026, with both Commonwealth Bank of Australia and National Australia Bank forecasting a move to 3.85% at the RBA’s first policy meeting of the year.
China developments and geopolitical risks in focus
External factors are also shaping AUD sentiment. Bloomberg reported that China’s Ministry of Finance plans to expand targeted investment in priority sectors such as advanced manufacturing, technological innovation, and human capital development, following a year-end meeting outlining next year’s fiscal policy priorities. Given Australia’s strong trade links with China, any positive spillovers into Chinese growth could provide additional support for the Australian Dollar.
At the same time, geopolitical risks remain elevated in the region. China launched the “Justice Mission 2025” military drills on Monday, simulating a blockade around Taiwan, according to China Daily citing Senior Colonel Shi Yi of the People’s Liberation Army Eastern Theater Command. Prolonged or repeated exercises could heighten market caution, particularly around shipping routes, semiconductor supply chains, and regional FX markets.
US Dollar pressured by Fed rate cut expectations
On the other side of the pair, the US Dollar remains under pressure. The US Dollar Index (DXY), which tracks the Greenback against six major currencies, is trading lower around the 97.90 area at the time of writing. The USD continues to face headwinds as investors maintain expectations for two additional rate cuts by the Federal Reserve (Fed) in 2026, despite mixed US macroeconomic signals.
The Fed reduced interest rates by 25 basis points at its December meeting, bringing the target range to 3.50%–3.75% and marking a cumulative 75 bps of easing in 2025 amid a cooling labor market and still-elevated inflation. According to the CME FedWatch tool, markets are assigning an 81.7% probability that rates will be left unchanged at the January meeting, while the likelihood of a 25-bps cut has declined to 18.3%.
Recent US data offered limited support to the Dollar. Initial Jobless Claims fell to 214K from 224K, beating market expectations, while Continuing Claims edged higher to 1.923 million. Meanwhile, delayed data from the US Bureau of Economic Analysis showed that GDP expanded at an annualized rate of 4.3% in the third quarter, well above the 3.3% consensus forecast.
AUD/USD technical outlook remains bullish
From a technical perspective, AUD/USD is hovering near 0.6720, maintaining a strong bullish structure. The daily chart shows the pair advancing within an ascending channel, signaling a persistent upward bias. Price action remains above the rising nine-day Exponential Moving Average, reinforcing short-term bullish momentum. The 14-day Relative Strength Index stands at 70.24, indicating strong momentum but also overbought conditions.
Immediate resistance is located at 0.6727, the highest level since October 2024. A sustained break above this area could open the door toward the upper boundary of the ascending channel near 0.6830. On the downside, failure to clear resistance may trigger a consolidation or pullback toward the nine-day EMA at 0.6683, followed by the lower channel boundary around 0.6660. A decisive break below the channel would expose the August 21 low near 0.6414.
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