AUD/USD Slide Persists as RBA Tightening Bets Clash with USD Strength

Technical Breakdown Shows AUD Under Pressure Near Key Support

The Australian Dollar remains on the back foot against its US counterpart for a sixth consecutive trading session on Thursday, with AUD/USD slipping below the 0.6600 confluence zone. The pair has broken through the ascending channel trendline that previously supported the bullish narrative, and price action below the nine-day exponential moving average signals eroding short-term momentum.

If weakness persists, traders are watching the 0.6500 psychological floor, with further deterioration potentially exposing the six-month low of 0.6414 registered on August 21. On a recovery basis, the nine-day EMA at 0.6619 represents the immediate resistance, while a push back into the ascending channel would need to clear the three-month peak of 0.6685 to reestablish bullish conviction toward 0.6707 and the upper channel boundary around 0.6760.

Consumer Inflation Expectations Rise, Yet Market Remains Cautious

Australia’s Consumer Inflation Expectations ticked up to 4.7% in December, recovering from November’s three-month trough of 4.5%, which ostensibly reinforces the Reserve Bank of Australia’s more hawkish positioning. The uptick suggests consumers remain vigilant about price pressures in a supply-constrained economy, potentially justifying earlier monetary tightening than previously anticipated.

Major Australian banks have recalibrated their rate forecasts following the RBA’s hawkish pause at its final 2025 meeting. Commonwealth Bank and National Australia Bank now project the central bank may commence rate hikes as soon as February, earlier than their prior expectations. Derivatives markets are pricing an approximately 28% probability of a February move, roughly 41% odds for March, with August almost fully priced for eventual tightening.

US Dollar Supported by Shifting Fed Rate Cut Narrative

The US Dollar Index, tracking the greenback against six major peers, holds steady near 98.40 as Federal Reserve easing expectations fade. The most recent US jobs data revealed a mixed picture: November payrolls expanded by 64,000—slightly above consensus—but October figures were revised significantly lower, and the unemployment rate rose to 4.6%, marking the highest level since 2021.

Consumer activity showed additional softness, with retail sales flatlined month-on-month, reinforcing signs that demand is moderating. Atlanta Federal Reserve President Raphael Bostic acknowledged this complexity in a recent blog post, noting the jobs report presented a mixed outlook and that rate stability would be his preference. More significantly, Bostic warned that “price pressures are not just tariff-driven” and cautioned against premature declarations of inflation victory, while projecting 2026 GDP growth around 2.5%.

The Fed’s messaging remains split on 2026 policy trajectory. While the median official pencils in just one rate reduction next year, some policymakers favor zero additional cuts. The CME FedWatch tool reflects tightness: fed funds futures are now pricing a 74.4% probability of unchanged rates at the January Federal Reserve meeting, up from nearly 70% one week prior.

Global Growth Signals Weaken, Adding to USD Tailwind

China’s economic momentum stumbled in recent data releases. Retail Sales expanded 1.3% year-over-year in November—well below the 2.9% forecast and prior month’s 2.9% reading. Industrial Production increased 4.8% annually, falling short of the 5.0% expectation despite matching the prior reading. Fixed Asset Investment came in at -2.6% year-to-date year-over-year, missing the -2.3% consensus and deteriorating from October’s -1.7%.

On the Australian domestic front, the manufacturing sector showed resilience with the preliminary S&P Global PMI edging to 52.2 in December from 51.6, though momentum cooled elsewhere. The Services PMI slipped to 51.0 from 52.8, and the Composite PMI fell to 51.1 from 52.6. Meanwhile, employment conditions remained soft, with the unemployment rate steady at 4.3% in November—better than the 4.4% consensus—but employment change contracted by 21,300 positions versus October’s upwardly revised gain of 41,100.

Currency Correlation Snapshot: AUD Weakness Broad-Based

Across the major currency complex, the Australian Dollar has emerged as the laggard. AUD strengthened only against the New Zealand Dollar (+0.12%) while weakening significantly against the Japanese Yen (-0.14%), with the greenback gaining 0.19% on the session. This broad-based AUD softness underscores the impact of divergent rate expectations: while RBA tightening bets are rising, the Fed’s hold bias is equally supportive for USD, creating a headwind for pairs involving the Australian currency.