AUD/USD holds ground near 0.6700 due to cautious RBA tone

• AUD/USD steadies as the Australian dollar finds support amid cautious sentiment over the RBA’s policy outlook.

• Markets price a 27% chance of an RBA rate hike in February, rising to 76% by May.

• Initial Jobless Claims fell to 198K, beating expectations of 215K and down from the prior week’s 207K.

AUD/USD moves little after two days of gains, hovering around 0.6700 during the Asian hours on Friday. The pair steadies as the Australian Dollar (AUD) receives support amid cautious sentiment surrounding the Reserve Bank of Australia’s (RBA) policy outlook.

Australia’s Consumer Inflation Expectations remained elevated at 4.6% in January, indicating that households continue to anticipate elevated price pressures. Markets currently price a 27% probability of a quarter-point rate hike by the Reserve Bank in February, increasing to 76% by May.

RBA policymakers acknowledged that inflation has eased markedly from its 2022 peak, although recent data point to renewed momentum. Headline inflation slowed to 3.4% YoY in November, the lowest since August, but it remains above the RBA’s 2–3% target range.

The AUD/USD pair holds ground as the US Dollar (USD) gains ground after Thursday’s US Initial Jobless Claims data reinforced expectations that the Federal Reserve (Fed) will keep interest rates on hold for the coming months. Fed funds futures have pushed expectations for the next rate cut back to June, as improving labour market conditions and policymakers’ concerns about sticky inflation persist.

Data from the US Department of Labor (DOL) showed Initial Jobless Claims unexpectedly fell to 198K in the week ended January 10, below market expectations of 215K and down from the prior week’s revised 207K.