The Australian dollar (AUD) has lost ground against the US dollar (USD) following the release of China’s Purchasing Managers’ Index (PMI) by Rating Dog Services, which saw a slight decline to 52.0 in December from 52.1 in November. Notably, Rating Dog also reported an increase in manufacturing PMI—from 49.9 in November to 50.1 in December. Since China and Australia have a significant trading relationship, shifts in China’s economic indicators tend to influence the Australian dollar quite a bit.
The AUD might find some backing as traders anticipate potential interest rate hikes from the Reserve Bank of Australia (RBA). There’s a growing focus on Australia’s consumer price index (CPI) report for the fourth quarter, expected on January 28. Analysts suggest that if core inflation ends up being higher than expected, it could lead to an interest rate increase at the RBA’s next meeting on February 3. Governor Michelle Block noted earlier that the board has not definitively considered rate hikes but has weighed the conditions that might necessitate one as far ahead as 2026.
As the USD gains strength, influenced by safe-haven demand amid geopolitical tensions—exemplified by the recent US detention of Venezuelan President Nicolas Maduro—the AUD/USD pair is weakening.
USD strengthens amid US-Venezuela tensions
- At the time of writing, the US dollar index (DXY), which tracks the USD against six major currencies, has been on the rise, trading around 98.60. Investors are particularly attentive to ISM Manufacturing PMI data scheduled for release later in the day.
- CNN reported over the weekend that President Trump’s administration took significant military action against Venezuela without Congressional consent, apprehending President Maduro for prosecution. Trump remarked that the US would oversee Venezuela until a stable transition of power occurs.
- The Guardian reported Monday that Trump warned of potential military intervention if Venezuela’s interim president, Delcy Rodríguez, does not fulfill US demands. He also made comments regarding Colombian leadership, hinted at “Operation Colombia,” criticized Mexico, and suggested that Cuba may be on the verge of collapse.
- Market participants anticipate the Federal Reserve could lower interest rates two more times in 2026. There’s speculation about Trump appointing a new chair for the Fed to replace Jerome Powell once his term ends in May—a decision that could move monetary policy towards lower rates.
- Minutes from the December Federal Open Market Committee (FOMC) meeting indicated that most members believed further rate cuts might be necessary if inflation decreases over time. However, some Fed officials suggested it could be better to maintain current rates for a while after three cuts this year to support a weak labor market.
- China’s official Manufacturing PMI improved to 50.1 in December from 49.2, beating the market expectation of 49.2. The non-manufacturing PMI also saw an increase, rising to 50.2 from 49.5 in November—slightly ahead of the 49.8 consensus.
- The RBA’s December meeting minutes reveal that policymakers are ready to tighten monetary policy if inflation doesn’t decline as anticipated. This places additional significance on the upcoming CPI report due on January 28, with analysts foreseeing a potential rate hike if core inflation is higher than expected.
- Australia’s headline inflation rate increased to 3.8% in October 2025 from 3.6% in September, remaining above the RBA’s target of 2-3%. Consequently, markets are starting to factor in a rate hike possibly as soon as February 2026, with some banks predicting a rate rise of 3.85% during the RBA’s first policy meeting of the year. Consumer inflation expectations rose to 4.7% in December from a prior three-month low of 4.5%.
Australian dollar hovers near 9-day EMA
The AUD/USD was around 0.6680 on Monday. Technical analysis shows this pair is currently near the lower end of an ascending channel. To be a bit more specific here, the 14-day Relative Strength Index (RSI) is at 59.60, indicating bullish momentum with potential for further upward movement before reaching overbought territory.
The AUD/USD is encountering immediate resistance at the 9-day EMA at 0.6681. If it breaks above this, it could find support to challenge the psychological level of 0.6700, followed by a target of 0.6727, the highest point since October 2024, reached on December 29. Additional gains could push the pair closer to the channel’s upper boundary around 0.6810.
On the flip side, the AUD/USD is also testing the lower boundary of the ascending channel near 0.6680. A break below this channel could lead to a decline towards approximately 0.6414, which is the six-month low noted on August 21.
