AUD/USD falls to near 0.6450 ahead of looming complete Australia’s CPI
- AUD/USD depreciates as traders adopt caution ahead of the looming expansion of Australia CPI data.
- The Australian Dollar may strengthen on expectations of a cautious stance from the RBA.
- The US Dollar struggles amid rising expectations of a Fed rate cut in December.
AUD/USD depreciates after two days of gains, trading around 0.6450 during the European hours on Tuesday. Traders await Australia’s first fully expanded monthly CPI dataset for October due on Wednesday. However, the Reserve Bank of Australia (RBA) is not yet assigning major weight to the revamped series, with markets instead focusing on housing and services inflation for clearer price signals.
The Australian Dollar (AUD) gained on the likelihood of an RBA cautious stance. Minutes from the RBA’s November meeting indicated the central bank may keep rates unchanged for an extended period. ASX 30-Day Interbank Cash Rate Futures show that as of November 20, the December 2025 contract traded at 96.41, implying a 6% probability of a rate cut to 3.35% from 3.60% at the upcoming RBA Board meeting.
The downside of the AUD/USD pair could be restrained as the US Dollar (USD) remains subdued amid rising odds of a Federal Reserve (Fed) rate cut in December, driven by recent dovish remarks from Fed policymakers.
The CME FedWatch Tool suggests that markets are now pricing in an 81% chance that the Fed will cut its benchmark overnight borrowing rate by 25 basis points (bps) at its December meeting, up from 71% probability that markets priced a day ago.
Fed Governor Christopher Waller told Fox Business on Monday that his main concern is the weakening labour market, adding that inflation is “not a big problem” given the recent softness in employment. He also said the September payrolls figure will likely be revised lower and warned that concentrated hiring is “not a good sign,” indicating his support for a near-term rate cut.
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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