Outlook
The Australian dollar is trading near 90-day highs versus the U.S. dollar, around 0.7037 AUDUSD, as market participants price in potential RBA tightening in 2026 and a softer U.S. dollar after late-2025 rate cuts. The AUD remains vulnerable to shifts in commodity prices and China demand, which have cooled recently, but solid domestic data and the prospect of higher Australian rates support a constructive bias. A hotter-than-expected November CPI or a firmer labour market could lift rate-hike bets further and push the AUD higher, while softer inflation, weaker China demand, or a clearer shift toward U.S. rate cuts could cap gains or weigh on the pair.
Key drivers
- RBA policy stance and expectations: Cash rate at 3.6% since December 2025; minutes hint at potential hikes in 2026 amid rising inflation risk.
- Inflation and employment: November 2025 CPI released January 7, 2026; unemployment finished 2025 at 4.1%; markets price in a 25 basis point hike on February 3, 2026.
- Commodity and China trade dynamics: Iron ore prices softer; exports to China fell about 17% last year, weighing on the AUD’s commodity-currency appeal.
- Global rate expectations: Fed rate cuts in December 2025 and potential easing in 2026 have supported a stronger USD earlier; shift in USD path continues to influence AUD moves.
- Charting and risk sentiment: AUD tends to perform in risk-on environments; global risk mood and carry trade flows shape intra-session moves.
- China’s growth trajectory: Uneven recovery with slower Q4 2025 growth (4.5%), impacting demand for Australian commodities.
- Broad currency backdrop: AUD crosses are sensitive to USD strength, shifts in risk appetite, and commodity price trends.
Range
AUDUSD is around 0.7037, near 90-day highs, with a 90-day range of 0.6444–0.7037 and a 3-month average near 0.6642. AUDEUR sits near 0.5876, within a 3-month range of 0.5591–0.5883 (about a 5.2% swing). AUDGBP is around 0.5093, within 0.4913–0.5093 over 3 months (roughly a 3.7% swing). AUDJPY is about 107.7, within a 99.15–108.30 range over the past 90 days (roughly a 9.2% swing).
What could change it
- Higher-than-expected Australian inflation or stronger-than-expected employment data pushing RBA rate-hike bets higher.
- A dovish surprise from the RBA or softer domestic data reducing rate-hike expectations.
- A rebound in iron ore or broader commodity prices boosting Australia’s export revenue and AUD sentiment.
- A more persistent or stronger-than-expected U.S. dollar decline or a shift in Fed policy that strengthens risk appetite.
- A renewed improvement in China’s demand or a faster-than-expected pick-up in China growth.
- Geopolitical or policy developments that alter global risk sentiment or carry-trade dynamics.
