AUD/USD maintains its bearish tone, hovering right above 0.6600
- The Aussie maintains a bearish tone against the USD, trading near 0.6600.
- The US Dollar is firming up despite softer US CPI figures.
- In Australia, rising inflation expectations have failed to provide support to the AUD.
The Australian Dollar posts marginal losses against the USD in a calm trading session on Friday. The pair retains the bearish trend from the 0.6685 highs, with the support area around 0.6600 under pressure.
The US Dollar is trading moderately higher against its main peers on Friday, unfazed by the soft US Consumer Prices Index (CPI) figures released on Thursday and investors’ hopes that the Federal Reserve (Fed) will cut interest rates further in 2026.
Data released on Thursday showed that US consumer prices grew at a 2.7% year-on-year pace in November, down from 3% in October, while core inflation slowed to 2.6% from 3% in the previous month.
Traders skeptical about US CPI data
Investors have taken these figures with caution. The Commerce Department announced that data collection began in the second half of the month, when Black Friday sales started, which is highly likely to have distorted the final numbers.
The US Federal Reserve cut its benchmark interest rate by 25 basis points last week and projected only one more cut in 2026. Investors, however, remain confident that the bank will be forced to trim rates by at least 0.5% to support a deteriorating labor market.
Data released in Australia earlier this week revealed that Consumer inflation expectations increased to 4.7% in December from 4.5% in November. These figures add to the case that the RBA might hike interest rates in the first quarter of 2026, but the impact on the Aussie has been minimal
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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