The Australian dollar stayed relatively low against the US dollar on Tuesday, despite some slight improvements in the previous day. The AUD/USD pair continues to show weakness after the People’s Bank of China declared on Tuesday that it would maintain the Loan Prime Rate (LPR) at 3.00% for the one-year rate and 3.50% for the five-year rate. This is significant since fluctuations in the Chinese economy can greatly affect the Australian dollar, given the close trading ties between the two nations.
There’s a possibility the AUD/USD could rebound as uncertainties surrounding the US dollar are growing, particularly related to the US-Greenland situation. On Saturday, President Trump announced new tariffs on eight European nations opposing his Greenland acquisition plan. Consequently, European Union ambassadors decided on Sunday to enhance their efforts against these tariffs and consider countermeasures if implemented.
In another development, the TD-MI inflation rate from Australia revealed a year-on-year increase of 3.5% for December, rising from 3.2% previously. Month-over-month, inflation surged by 1.0% for December 2025—the fastest rate since December 2023—sharply up from 0.3% in the preceding two months.
On one hand, the Australian dollar might gain some support as inflation pressures grow, possibly prompting the Reserve Bank of Australia (RBA) to tighten monetary policy. However, the International Monetary Fund (IMF) advised caution to the RBA, asserting that inflation remains above the bank’s target of 2-3%, even with a quicker than expected drop in headline CPI in November.
US dollar struggles amid US-Greenland tensions
- The US Dollar Index (DXY), tracking the US dollar against six major currencies, has deepened its losses, trading around 99.00.
- Bloomberg reported that Trump plans to levy a 10% tariff on imports from Denmark, Sweden, France, Germany, the Netherlands, Finland, the UK, and Norway starting February 1, until Greenland can be acquired.
- Anticipations that the Federal Reserve might cut interest rates have lessened following recent labor market data, with Fed officials stating there isn’t much urgency for cuts until clear signs of sustained inflation near the 2% target emerge. Morgan Stanley analysts have updated their 2026 forecast, now expecting a rate cut in June and another in September instead of the previously anticipated cuts in January and April.
- The US Department of Labor revealed on Thursday that initial jobless claims fell unexpectedly to 198,000 for the week ending January 10, underperforming market expectations of 215,000 and down from a revised 207,000 the prior week—indicating the labor market is still resilient even amid high borrowing costs and limited layoffs.
- The US core consumer price index (CPI), excluding food and energy, rose 0.2% in December, which was below expectations, while the annual core inflation rate is at 2.6%, its lowest point in four years. Although earlier reports were affected by the government shutdown, the latest figures reflect an easing in inflation trends. Meanwhile, the CPI for December 2025 saw a 0.3% month-on-month rise, consistent with market expectations, and the annual rate was stable at 2.7%.
- Data from China’s National Bureau of Statistics indicated a 5.2% annual rise in industrial production for December, an improvement from November’s 4.8%, driven by strong export demand. Conversely, retail sales grew only 0.9% year-on-year, missing projections of 1.2% and falling short of November’s 1.3% growth.
- China’s GDP for the fourth quarter of 2025 rose 1.2% sequentially, which quickened from 1.1% in the third quarter and surpassed the expected 1.0%. The annual GDP growth rate for Q4 recorded 4.5%, slower than the previous quarter’s 4.8% but edging above the forecast of 4.4%.
- RBA policymakers acknowledged a recent upswing in inflation metrics; however, it has significantly retreated from the peak seen in 2022. The headline CPI dropped to 3.4% year-on-year in November, the lowest since August, yet remains above the RBA’s target range. The average adjusted CPI showed a modest decline to 3.2%, down slightly from October’s peak.
- In the RBA’s assessment, there are moderate upward trends in inflation risks, although global developments appear to have eased some downside risks. Board members believe there will only be a single rate cut this year, projecting core inflation to stay above 3% in the near term and to decrease to around 2.6% by 2027.
- As of January 16, the ASX 30-day interbank cash rate futures for February 2026 indicates a 22% chance of a rate hike to 3.85% at the next RBA meeting.
AUD remains above 9-day EMA at 0.6700
The AUD/USD pair was around 0.6710 on Tuesday. Analysis of daily charts suggests that the pair is stabilizing near its 9-day exponential moving average (EMA), indicating a neutral trend for the near term. Additionally, the 14-day Relative Strength Index (RSI) is above the midpoint at 56.70, supporting momentum.
The AUD/USD pair stays clear of the 9-day EMA at 0.6700, with a bullish outlook persisting, eyeing a target at 0.6766, which would be the highest since October 2024. Conversely, a daily close below this short-term average could shift focus to the 50-day EMA at 0.6646 as an initial support point. Should the decline continue, it could extend further to 0.6414, marking the lowest since June 2025.
