Australian Dollar deepens losses despite rising Consumer Inflation Expectations

• The Australian Dollar extends losses despite growing odds of an RBA rate hike as early as February.

• Australia’s Consumer Inflation Expectations rose to 4.7% in December from November’s three-month low of 4.5%.

• The US Dollar gains amid fading likelihood of further Federal Reserve rate cuts.

The Australian Dollar (AUD) loses ground against the US Dollar (USD) on Thursday for the sixth successive day. The AUD/USD pair may gain ground as the Aussie Dollar could receive support from investors’ caution following the release of Australia’s Consumer Inflation Expectations, which rose to 4.7% in December from November’s three-month low of 4.5%, supporting the Reserve Bank of Australia’s (RBA) hawkish stance.

The AUD could find support as markets grow increasingly wary of an RBA rate hike as early as February. Commonwealth Bank of Australia and National Australia Bank now expect the RBA to start tightening sooner than previously projected, pointing to stubborn inflation in a capacity-constrained economy. Their forecasts followed the central bank’s hawkish hold on rates at its final 2025 meeting last week. Swaps price in a 28% chance of a February hike, nearly 41% in March, with August almost fully priced.

US Dollar receives support from fading Fed rate cut bets

• The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is holding ground and trading around 98.40 at the time of writing. The USD finds support amid diminishing expectations of additional Federal Reserve rate cuts.

• The US November jobs report showed payroll growth of 64K, slightly above forecasts, but October figures were revised sharply lower, and the unemployment rate rose to 4.6%, the highest since 2021, underscoring a gradually cooling labor market. Retail sales were flat on the month, reinforcing signs that consumer demand is losing momentum.

• Atlanta Fed President Raphael Bostic said in a blog post on Tuesday that the jobs report was a mixed picture and that it did not change the outlook, and that he would prefer to leave rates unchanged at the last Fed meeting. Bostic said that “multiple surveys” are suggesting that there are higher input costs and that firms are determined to preserve their margins by increasing prices. He added that “Price pressures are not just coming from tariffs, the Fed should not be hasty to declare victory,” and that he sees GDP for 2026 at around 2.5%.

• Fed officials are split over whether more easing of monetary policy is needed next year. The median Fed official penciled in just one reduction in 2026, but some policymakers see no further cuts. Meanwhile, traders anticipate two rate cuts next year.

• The CME FedWatch tool suggests that Fed funds futures are pricing an implied 74.4% chance of a hold in rates at the US central bank's next meeting in January, up from nearly 70% a week ago.

• The National Bureau of Statistics (NBS) showed Monday that China’s Retail Sales rose 1.3% year-over-year (YoY) in November vs. 2.9% expected and 2.9% in October. Chinese Industrial Production increased 4.8% YoY in the same period, compared to the 5.0% forecast and 4.9% seen previously.

• China’s Fixed Asset Investment came in at -2.6% year-to-date (YTD) YoY in November, missing the expected -2.3% figure. The October reading was -1.7%.

• Australia’s preliminary S&P Global Manufacturing PMI edged up to 52.2 in December from 51.6 previously, according to data released by S&P Global on Tuesday. Meanwhile, the Services PMI slipped to 51.0 from 52.8, and the Composite PMI fell to 51.1 from 52.6.

• The Australian Bureau of Statistics (ABS) reported last week that the Unemployment Rate steadied at 4.3% in November. The figure came in below the market consensus of 4.4%. Furthermore, the Australian Employment Change arrived at -21.3K in November from 41.1K in October (revised from 42.2K), compared with the consensus forecast of 20K.

Australian Dollar moves below confluence support zone near 0.6600

The AUD/USD pair is trading below 0.6600 on Thursday. The technical analysis of the daily chart shows the pair is positioned below the ascending channel trend, reflecting a weakening of a bullish bias. Additionally, the pair is trading below the nine-day Exponential Moving Average (EMA), indicating a weaker short-term price momentum.

The AUD/USD pair could fall toward the psychological level of 0.6500, followed by the six-month low of 0.6414, recorded on August 21.

On the upside, the AUD/USD pair may test the nine-day EMA at 0.6619. A rebound toward the ascending channel would revive the bullish bias and support the pair to test the three-month high of 0.6685, followed by 0.6707, the highest since October 2024. Further advances would support the pair to test the upper ascending channel boundary around 0.6760.