Bias
The AUD faces competing forces: China’s softer inflation backdrop keeps demand for Australian exports weaker, while markets are pricing in potential RBA tightening in 2026. With domestic data scarce early in the week, near-term AUD moves may drift within a wide range, though firmer prices are possible if the RBA reaffirms a higher-for-longer stance.
Key drivers
- RBA signals potential rate hikes in 2026: Minutes from the December meeting point to possible policy tightening, supporting AUD upside if delivered.
- AUD approaches a 14-month high on rate-hike expectations and a softer USD: The Aussie has rallied as tolerances for higher Australian rates widen and the U.S. dollar softens.
- China’s uneven recovery affects commodity demand: disinflation in China has weighed on iron ore and other exports, constraining the AUD despite domestic policy expectations.
- Upcoming Australian data: CPI on January 7 and the Labour Force report on January 22 could tilt the AUD’s trajectory.
- The AUD as a commodity and risk-on currency: swings in iron ore and energy prices, along with global risk sentiment, can move the AUD alongside China demand and USD moves.
Range
AUDUSD is around 0.6681, near 7-day lows, 1.5% above its 3-month average of 0.6587, having traded in a 0.6444 to 0.6739 range. AUD/EUR is around 0.5738, near 7-day lows, about 1.5% above its 3-month average of 0.5657, within a 0.5548 to 0.5766 range. AUD/GBP is around 0.4976, near 7-day lows, 0.6% above its 3-month average of 0.4948, trading between 0.4827 and 0.4995. AUD/JPY is near 106.4, at 90-day highs, about 4.0% above its 3-month average of 102.3, with a range from 97.54 to 106.4.
What could change it
- Strong Australian CPI or employment data, or clearer policy guidance from the RBA, could push the AUD higher as rate-hike expectations firm up.
- A rebound in China growth or a rally in Australian commodity prices (iron ore, coal, gas) would support the AUD.
- A shift in USD dynamics or risk sentiment—if the USD strengthens or risk appetite fades, the AUD could weaken.
- Unexpected changes in RBA policy (delay or acceleration of tightening) would importantly alter the bias.
