Recent developments indicate a bearish outlook for the USD against the AUD. Analysts note that the US dollar has softened significantly due to expectations of aggressive rate cuts by the Federal Reserve as soon as mid-2026, following a surprising drop in US inflation from 3% to 2.7% in November. This shift in economic sentiment has reduced the dollar’s yield advantage, leading to a depreciation of the USD amidst increased risk-on sentiment in the markets.
In contrast, the Australian dollar has shown signs of strength as recent economic data reflects robust household spending and strong GDP growth of 2.1% year-on-year for Q3 2025. This uptick in economic activity has heightened market expectations for a potential rate hike by the Reserve Bank of Australia (RBA), especially in light of persistent inflation, which rose to 3.8% in October.
Despite fluctuations in recent trading sessions, the Australian dollar is poised to capitalize on a weaker US dollar. The pair has remained stable, currently trading at 1.5120, marginally below its three-month average of 1.5263. Analysts suggest that the AUD could continue to strengthen if risk appetite remains robust, coupled with supportive domestic data that could prompt a more hawkish shift from the RBA.
Overall, with the Federal Reserve’s dovish stance expected to weigh down the USD, and with improving economic indicators underpinning the AUD, the outlook for the AUD/USD exchange rate shows potential for appreciation in the coming months, especially if global risk conditions favor commodity and emerging market currencies.
