- AUD/USD drops for the third session in a row and flirts with 0.6200.
- The US Dollar rose to four-day highs ahead of the Fed gathering.
- Inflation in Australia came in on the soft side in Q4.
The FX world saw another positive day for the US Dollar (USD) on Wednesday, with the US Dollar Index (DXY) clinching multi-day highs near the 108.30 region vs. the acceleration of the bearish trend in the Australian Dollar (AUD), prompting AUD/USD to slip back to the boundaries of the 0.6200 region.
China's shadow looms over the Aussie
Bolstering the AUD’s troubles, weak business data out of China over the weekend has been weighing heavily on sentiment. In fact, January’s business activity data disappointed, with the NBS Manufacturing PMI slipping to 49.1—dipping into contraction territory—and the Non-Manufacturing PMI barely holding at 50.2. It is worth noting that the Australian Dollar, closely tied to China's economic health, has extended its pullback from the yearly highs north of 0.6300 it achieved on January 24. With China’s recovery stalling, the Aussie faces a tough road ahead.
The AUD’s comeback: Short-lived?
Last week, the AUD managed an impressive rally, briefly climbing above 0.6300—a level not seen this year. However, this rebound appeared more tied to a cooling USD than to any inherent strength in Australia’s economy. As speculation grows over the Reserve Bank of Australia’s (RBA) next move, particularly after the latest data show a loss of momentum of inflationary pressure in Oz.
In fact, Australia’s latest Q4 CPI data seem to have reinforced the case for an RBA rate cut at the next meeting on February 18. Headline inflation met expectations, rising 2.5% YoY, down from 2.8% in Q3. More importantly for policy, the trimmed mean CPI inflation, a measure closely watched by the RBA, slipped to a three-year low of 3.2% YoY, undershooting expectations (3.3%) and the RBA’s own projection (3.4%) after registering 3.6% in Q3.
This softer inflation print has prompted markets to fully price in a 25 bps RBA rate cut in February, compared to an 80% probability just a day ago. Looking further ahead, markets are now factoring in 85 bps of easing over the next 12 months, reflecting growing confidence in a dovish policy path.
Commodities also hurt the AUD
The unabated struggles in the Chinese demand spell trouble for Australian exports like iron ore and copper and are doing little to support the Aussie. While iron ore prices remain relatively stable, copper prices have recently retreated to multi-day lows.
Headwinds for the Aussie Dollar
The prospect of looser monetary policy, coupled with ongoing sluggishness in China’s economic activity, puts AUD/USD under extra pressure. Additionally, with the Fed’s policy stance remaining comparatively tighter, the RBA-Fed divergence could add further pressure on the Australian Dollar in the near term.
What’s next for AUD/USD?
The Aussie faces a rocky path ahead. The USD is likely to maintain its strength, particularly if Fed policy remains hawkish. At the same time, uncertainties around China’s recovery and Australia’s economic momentum will continue to weigh on the AUD. However, any signs of a dovish shift by the Fed could offer the Aussie some breathing room.
Technical outlook: Cautious sentiment
Technically, AUD/USD is showing mixed signals. Key support sits at 0.6130, the 2025 low, and a break below could open the door to the psychological 0.6000 level. On the upside, resistance is seen at 0.6330, the YTD peak, with further hurdles at the weekly high of 0.6549. Momentum indicators are uncertain—RSI has dropped to 45, indicating growing bearish momentum, while the ADX near 21 suggests a weakening trend.
AUD/USD daily chart
Key data to watch this week
While it’s a quieter week for Australian data, several key releases could influence AUD/USD sentiment:
- Export and Import Prices (January 30).
- Producer Prices, Housing Credit, and Private Sector Credit (January 31).
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
![EUR/USD consolidates below 1.0500 amid light trading](https://editorial.fxsstatic.com/images/i/EURUSD-bearish-object_Medium.png)
EUR/USD consolidates below 1.0500 amid light trading
EUR/USD struggles to capitalize on recent upside and oscillates in a narrow range below 1.0500 early Monday. However, the pair's downside remains cushioned by persistent US Dollar weakness and an upbeat mood. Focus shifts to central bank talks.
![GBP/USD ranges near 1.2600 as US Dollar steadies](https://editorial.fxsstatic.com/images/i/GBPUSD-bullish-object-1_Medium.png)
GBP/USD ranges near 1.2600 as US Dollar steadies
GBP/USD keeps its range near 1.2600 in the early European session on Monday. The pair stays support amid a subdued US Dollar price action following Friday's disappoining US Retail Sales data. Thin trading is likely to extend as US markets are closed in observance of Presidents' Day.
![Gold price bulls have the upper hand near $2,900 amid trade war fears and weaker USD](https://editorial.fxsstatic.com/images/i/Commodities_Gold-1_Medium.jpg)
Gold price bulls have the upper hand near $2,900 amid trade war fears and weaker USD
Gold regained positive traction on Monday amid sustained USD weakness. Concerns about Trump’s tariffs further benefit the safe-haven XAU/USD pair. The fundamental and technical setup underpin prospects for additional gains.
![Cardano set for 20% rally as bullish bets increase](https://editorial.fxsstatic.com/images/i/ADA-bullish-animal_Medium.png)
Cardano set for 20% rally as bullish bets increase
Cardano price extends its rally on Monday after gaining more than 13% last week. On-chain metrics suggest a bullish picture as ADA’s long-to-short ratio reached the highest level in over a month.
![Tariffs likely to impart a modest stagflationary hit to the economy this year](https://editorial.fxsstatic.com/images/i/Economic-Indicator_GDP-3_Medium.png)
Tariffs likely to impart a modest stagflationary hit to the economy this year
The economic policies of the Trump administration are starting to take shape. President Trump has already announced the imposition of tariffs on some of America's trading partners, and we assume there will be more levies, which will be matched by foreign retaliation, in the coming quarters.
![The Best Brokers of the Year](https://editorial.fxsstatic.com/images/Brokers/Editors_Pick_Box_395x179_Medium.png)
The Best Brokers of the Year
SPONSORED Explore top-quality choices worldwide and locally. Compare key features like spreads, leverage, and platforms. Find the right broker for your needs, whether trading CFDs, Forex pairs like EUR/USD, or commodities like Gold.