Why Australian Money Slides Against USD Despite Rising Inflation Pressures

The Australian Dollar continues retreating for six consecutive trading sessions despite economic signals supporting potential RBA action. Growing inflation expectations and hawkish central bank positioning fail to provide meaningful support to the Aussie. Meanwhile, the greenback strengthens as Federal Reserve rate cut prospects diminish into the new year.

Technical Breakdown: AUD/USD Trading Below Key Support

The Australian money to USD exchange rate (AUD/USD) has broken below the critical 0.6600 support zone, signaling accelerated downward momentum. Daily chart analysis reveals the pair trading beneath both the ascending channel trend and the nine-day Exponential Moving Average at 0.6619, indicators suggesting weakening bullish structure.

Immediate downside targets emerge at the psychological 0.6500 level, with further weakness potentially extending toward the six-month low of 0.6414 established in August. Should the pair stabilize, the nine-day EMA represents the first resistance point. A sustained bounce above this level could rekindle interest in the three-month high near 0.6685, with extended gains potentially reaching 0.6707 (highest since October 2024) and the upper channel boundary around 0.6760.

Inflation Signals Fail to Arrest Australian Dollar Decline

Australia’s Consumer Inflation Expectations climbed to 4.7% in December, up from November’s three-month bottom of 4.5%. The data suggests persistent price pressures remain embedded in consumer psychology, normally a factor supporting central bank tightening action.

This backdrop fueled renewed speculation about Reserve Bank of Australia policy adjustments. Commonwealth Bank and National Australia Bank both shifted their forecasts following the RBA’s hawkish stance during its final 2025 meeting, now expecting rate increases to commence earlier than previously anticipated. Market pricing reflects this hawkish tilt: swap derivatives currently price a 28% probability of February tightening, nearly 41% for March, with August largely fully priced in.

Yet paradoxically, these inflation and hawkish signals have proven insufficient to lift the Australian money to USD levels meaningfully. The currency extends losses despite these supportive fundamentals, suggesting that global dollar strength and risk sentiment headwinds are dominating local considerations.

US Dollar Gains Ground as Fed Cut Expectations Fade

The US Dollar Index, tracking the greenback against six major counterparts, holds steady near 98.40, reflecting renewed strength in the American currency. This resilience stems from dimming expectations surrounding further Federal Reserve monetary easing.

November’s employment data offered mixed signals to markets. Payroll additions of 64,000 slightly exceeded forecasts, yet October figures faced significant downward revision. The unemployment rate ticked higher to 4.6%, marking the highest level since 2021 and suggesting gradual labor market cooling. Retail sales remained flat month-over-month, signaling moderating consumer demand momentum.

Atlanta Federal Reserve President Raphael Bostic characterized the jobs landscape as “a mixed picture” and indicated his preference for maintaining rates at their current level through 2026. Importantly, he cautioned that “price pressures are not just coming from tariffs, the Fed should not be hasty to declare victory,” noting that multiple surveys reveal rising input costs as firms work to preserve profit margins through pricing adjustments.

Fed officials remain divided on 2026 easing prospects. The median policymaker projection pencils in only one rate cut next year, while some see zero additional reductions. By contrast, traders anticipate two cuts. CME FedWatch data shows futures markets pricing a 74.4% probability of unchanged rates at January’s meeting, up from approximately 70% a week prior, reflecting the pivot away from cut expectations.

Mixed Economic Signals from China and Australia

Chinese economic data released Monday presented a softer picture. Retail Sales expanded just 1.3% year-over-year in November against an expected 2.9%, falling short of October’s 2.9% reading. Industrial Production climbed 4.8% annually, slightly below the 5.0% forecast and previous 4.9%.

Fixed Asset Investment disappointed on a year-to-date basis, arriving at -2.6% versus the expected -2.3%, with October recording -1.7%. These figures underscore persistent economic momentum challenges in the world’s second-largest economy.

Australian activity indicators painted a mixed picture. The preliminary S&P Global Manufacturing PMI edged higher to 52.2 in December from 51.6 previously. However, Services PMI retreated to 51.0 from 52.8, while the Composite PMI fell to 51.1 from 52.6, suggesting uneven economic momentum.

Employment data remained soft. The November Unemployment Rate held steady at 4.3%, actually beating consensus expectations of 4.4%. However, Employment Change deteriorated significantly, posting a -21.3K decline in November compared to October’s initially reported 42.2K (revised to 41.1K), well below the 20K consensus forecast.

Currency Performance Snapshot

The Australian Dollar emerged as the weakest performer among major currency pairs on the day, recording losses of 0.19% against the US Dollar. This extended weakness against the greenback reflects the convergence of multiple headwinds: deteriorating employment trends, soft activity indicators, and the dollar’s haven appeal amid uncertain global conditions despite supportive inflation and RBA hawkishness.

The australian money to USD exchange dynamic continues to be shaped more by global dollar flows and risk sentiment than by Australia-specific fundamentals, leaving the Aussie vulnerable to further declines in the near term.