On Wednesday, the Australian dollar (AUD) increased against the US dollar (USD), marking its fourth consecutive day of gains. This rise occurred even as Australia’s inflation numbers showed a decrease in November. Traders are now looking forward to the complete inflation report for the fourth quarter, which is set to be released later this month. Analysts have cautioned that if core inflation rises more than 0.9%, the Reserve Bank of Australia (RBA) may consider tightening its policy at the February meeting.
The Australian Financial Review mentioned that the RBA might not finish its tightening phase in this cycle. Survey results indicate that inflation is likely to remain persistently high in the coming year, increasing the likelihood of at least two more interest rate hikes.
According to the Australian Bureau of Statistics (ABS), Australia’s consumer price index climbed 3.4% year-on-year in November, down from 3.8% in October. This figure was below the expected 3.7%, yet still higher than the RBA’s target range of 2-3%. Housing costs saw their slowest increase in three months, with inflation at its lowest since August.
The consumer price index for November was stable, showing no change month on month—similar to October’s figure. Meanwhile, the RBA’s trimmed average CPI rose by 0.3% month-on-month and 3.2% year-on-year. On a separate note, seasonally adjusted building permits jumped 15.2% month-on-month to 18,406 units in November 2025, reaching the highest level in nearly four years after a previously revised 6.1% decline. Annual approvals were also up by 20.2%, reversing a 1.1% decline in October.
US dollar falls ahead of ISM services PMI
- The US Dollar Index (DXY), which benchmarks the dollar against six major currencies, has been gradually declining after a slight uptick in the previous session, currently hovering around 98.50.
- Investors are anticipating U.S. economic results that might influence Federal Reserve policy. Key reports like the ISM Services Purchasing Managers Index (PMI) and JOLT job postings will be released later today. The upcoming U.S. Nonfarm Payrolls (NFP) report is expected to show a job increase of 55,000 for December, down from 64,000 for November.
- Federal Reserve President Stephen Milan stated on Tuesday that the central bank needs to be aggressive in cutting interest rates this year to maintain economic momentum. Conversely, Minneapolis Fed President Neel Kashkari expressed concern about a potential spike in the unemployment rate.
- Richmond Fed President Tom Barkin, who isn’t a voting member of the current Fed rate-setting committee, indicated on Tuesday that future interest rate adjustments need to be “tweaked” based on forthcoming data. He cited risks to the Fed’s employment and inflation objectives.
- Federal funds futures currently indicate an approximately 82.8% chance that the central bank will hold interest rates steady at its meeting on January 27-28, according to CME Group’s FedWatch tool.
- In a significant development, the United States conducted a major military operation against Venezuela on Saturday. President Donald Trump announced that Venezuelan President Nicolas Maduro and his spouse had been captured and fled the nation.
- On Monday, Venezuelan President Maduro pleaded not guilty to U.S. charges related to a narco-terrorism case, which is setting the stage for a highly consequential legal battle, as reported by Bloomberg.
- Traders are predicting that the Fed will implement two additional rate cuts in 2026. The markets are also preparing for President Donald Trump to appoint a new Fed chair to take over from Jerome Powell when his term concludes in May—perhaps indicating a shift towards lower interest rates.
- China’s RatingDog Services Purchasing Managers’ Index (PMI) for December, released on Monday, was reported at 52.0, slightly down from November’s 52.1. Furthermore, RatingDog noted that the manufacturing PMI increased from 49.9 in November to 50.1 in December. Notably, given that China and Australia are significant trading partners, shifts in the Chinese economy can influence the Australian dollar.
- Minutes from the RBA’s December meeting highlight that policymakers are prepared to tighten monetary policy if inflation does not decrease as anticipated. This adds importance to the fourth quarter CPI report expected on January 28. Analysts believe that if core inflation turns out better than expected, a rate hike could happen during the RBA’s meeting on February 3.
The Australian dollar rose above $0.6750, hitting a 15-month high.
As of Wednesday, AUD/USD is trading around 0.6750. Daily chart technical analysis indicates that the pair is moving within an ascending channel pattern, which suggests a sustained bullish trend. That said, the 14-day Relative Strength Index (RSI) stands at 70, signaling overbought conditions.
AUD/USD has reached its highest point since October 2024 and is aiming for the upper boundary of the ascending channel at around 0.6830.
Initial support is identified at the 9-day exponential moving average (EMA) at 0.6708, followed by the lower boundary of the ascending channel near 0.6700. A break beneath the confluence support zone could lead AUD/USD towards the 50-day EMA around 0.6625.
(This article was corrected on 7 January at 04:15 GMT to clarify that the Australian dollar hit a 15-month high, not a 14-month high.)
