AUD/USD Slides to Support Levels as RBA Tightening Bets Rise Amid Inflation Pressures

The Australian Dollar is under pressure against its US counterpart despite mounting expectations for an early rate hike from the Reserve Bank of Australia. The AUD/USD pair has extended its losing streak to six consecutive trading sessions, breaking below key support zones and signaling weakening momentum in the shorter term.

Technical Setup Points to Further Downside Risk

From a technical perspective, the AUD/USD pair has slipped beneath the 0.6600 psychological level and is now trading below its nine-day Exponential Moving Average, suggesting diminished short-term buying interest. The pair has also fallen outside an ascending channel pattern that previously supported bullish positioning.

Traders watching the downside should monitor the 0.6500 handle as the next potential support, with the six-month low of 0.6414 (established on August 21) offering further downside protection. A bounce higher would likely need to clear the nine-day EMA at 0.6619 to regain traction. Beyond that, the three-month high of 0.6685 and the October 2024 peak near 0.6707 would come into view. A sustained move above these levels could challenge the upper boundary of the ascending channel around 0.6760.

RBA Hawkish Signals Underpinning the Aussie Narrative

Despite the recent weakness, the Australian unit has reason for support. Australia’s Consumer Inflation Expectations climbed to 4.7% in December, a step up from November’s three-month trough of 4.5%, keeping pressure on the RBA to consider monetary tightening sooner rather than later.

This inflation data is prompting major Australian lenders to revise their rate path forecasts. Commonwealth Bank and National Australia Bank both now project the RBA will lift rates earlier than previously anticipated, citing persistent inflation in an economy operating near full capacity. Their revised outlooks came on the heels of the RBA’s hawkish hold at its final meeting of 2025. Market pricing is now reflecting a 28% probability of a hike in February, nearly 41% for March, with August priced in almost entirely.

US Dollar Holds Ground as Fed Easing Bets Cool

The greenback is finding its footing as the probability of additional Federal Reserve rate cuts continues to diminish. The US Dollar Index (DXY), which tracks the dollar’s performance against six major currencies, is hovering near 98.40.

The softer outlook for Fed easing stems partly from a mixed employment landscape. November’s jobs report delivered payroll growth of 64,000, marginally ahead of expectations, but October figures were revised significantly lower. The jobless rate ticked up to 4.6%, marking its highest reading since 2021 and hinting at gradual labor market cooling. Retail sales remained flat month-over-month, further reinforcing signs of fading consumer momentum.

Federal Reserve policymakers remain divided on the need for additional cuts. The median dot plot suggests just one rate reduction through 2026, though some officials foresee no further easing. Market traders, by contrast, are pricing in two cuts next year. The CME FedWatch tool is assigning a 74.4% probability to rates staying on hold at the January Fed meeting, up from approximately 70% a week prior.

Atlanta Fed President Raphael Bostic weighed in this week, noting that the jobs report painted a mixed picture and signaling his preference to hold rates steady. Bostic emphasized that businesses are grappling with elevated input costs and are protecting profit margins by raising prices, warning against premature declarations of victory on inflation. He pegged 2026 GDP growth expectations at roughly 2.5%.

Global Growth Signals Sending Mixed Messages

China’s economic data presented a softer picture. November Retail Sales expanded just 1.3% year-over-year, missing the 2.9% forecast and trailing October’s 2.9% reading. Industrial Production rose 4.8% annually, coming in below the 5.0% estimate and the prior 4.9% pace. Fixed Asset Investment fell 2.6% year-to-date in November, slightly worse than the expected -2.3% decline.

In Australia, the manufacturing sector showed modest resilience. The S&P Global Manufacturing PMI edged up to 52.2 in December from 51.6 previously. However, the Services PMI dipped to 51.0 from 52.8, while the Composite PMI fell to 51.1 from 52.6, pointing to uneven economic momentum across sectors.

The labor market in Australia also sent conflicting signals. The Unemployment Rate held steady at 4.3% in November, undercutting the consensus forecast of 4.4%. However, Employment Change came in at -21,300 in November, a sharp reversal from October’s revised gain of 41,100 and well below the anticipated 20,000 increase.

Cross-Currency Snapshot

The Australian Dollar proved the weakest performer among major currencies on the day, particularly against the Japanese Yen. The AUD weakened 0.19% versus USD and 0.27% against JPY, reflecting broad-based selling pressure across the board.