AUD/USD declines as US growth slows but inflation stays firm

• The US Dollar rebounds, weighing on the Australian Dollar despite diverging monetary policy expectations.
• US growth slows markedly in the fourth quarter, falling well short of market expectations.
• Core Personal Consumption Expenditures inflation accelerates on a monthly basis.

AUD/USD trades around 0.7050 on Friday at the time of writing, down 0.13% on the day, following the release of significantly weaker-than-expected US Gross Domestic Product (GDP) data. The pair trims part of its recent gains as investors reassess growth and monetary policy prospects in the United States (US).

The Bureau of Economic Analysis reports that the US GDP expanded at an annualized rate of 1.4% in the fourth quarter of 2025, after a 4.4% expansion in the previous quarter. Markets had expected a 3% increase, highlighting a much sharper slowdown than anticipated in the world’s largest economy. According to the release, growth is mainly driven by consumer spending and investment, while declines in government spending and exports partially offset the overall performance.

At the same time, the core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred inflation gauge, rose by 2.7% on a quarterly basis, above market expectations. On a monthly basis, the index increased by 0.4% in December, pointing to persistent underlying inflationary pressures despite the slowdown in activity.

This combination of weaker growth and resilient core inflation complicates the market outlook. On the one hand, the slowdown in Gross Domestic Product reinforces the view of a cooling economic cycle that could pave the way for monetary easing. On the other hand, firm inflation data may encourage the US central bank to maintain a cautious stance for longer than previously expected.

For the Australian Dollar (AUD), which remains sensitive to shifts in global risk sentiment, these US data support a renewed bid for the US Dollar. Even though the Reserve Bank of Australia (RBA) maintains a relatively hawkish tone amid a solid labor market backdrop, near-term dynamics continue to be driven primarily by expectations regarding the US rate path and the performance of the Greenback.