AUD Surges on Rate Hold Bets as Fed Signals December Rate Cut Support

Market expectations for an RBA rate hold in December are fueling Australian Dollar strength against the US Dollar. The Australian Dollar extended its winning streak to five consecutive sessions on Thursday, with the AUD/USD pair trading around 0.6530 as investors digest shifting monetary policy signals from both sides of the Pacific.

Fed Rate Cut Bets Intensify, Weighing on the Greenback

The US Dollar Index (DXY) has come under sustained pressure, trading near 99.50 as market participants increasingly price in an accommodative Federal Reserve policy stance. According to the CME FedWatch Tool, traders are now assigning an 84% probability to a 25 basis-point rate cut in December—a dramatic shift from just 7 days prior when the likelihood stood at only 30%.

Several key developments have shifted rate expectations:

Labour market softening signals support for cuts. Initial Jobless Claims dropped to 216,000 for the week ending November 22, beating the 225,000 forecast. The four-week moving average eased to 223,750, signaling gradual weakness in employment conditions. Fed Governor Christopher Waller remarked that the labour market is weakening and inflation poses “minimal concern,” signaling openness to near-term rate reductions. New York Fed President John Williams echoed this sentiment, noting that rate cuts remain on the table in the “near-term.”

Inflation pressures have moderated. The Producer Price Index held steady at 2.7% year-over-year in September, aligning with expectations. Core PPI softened to 2.6% from 2.9%, coming in below the 2.7% forecast. Meanwhile, US Retail Sales decelerated to 0.2% month-over-month in September from August’s 0.6% gain, reflecting cautious consumer spending.

Leadership changes reshape rate outlook. Reports indicate the White House is narrowing its search for the next Federal Reserve chair to National Economic Council Director Kevin Hassett, viewed as supportive of lower interest rates—a shift that has encouraged rate-cut speculation among investors.

Australian Economic Data Supports Currency Strength

The Australian Dollar has benefited from a confluence of domestic supportive factors. Private Capital Expenditure accelerated to 6.4% quarter-over-quarter in Q3, substantially outpacing the 0.5% forecast and jumping from Q2’s meager 0.2% reading. This robust capex performance signals healthy business investment activity.

The latest monthly Consumer Price Index reading climbed to 3.8% year-over-year in October, exceeding both the 3.6% consensus and the prior 3.5% print. While elevated, the data reinforced the Reserve Bank of Australia’s cautious policy approach, supporting expectations for an unchanged Official Cash Rate (OCR) at 3.6% through December.

The RBA’s November monetary policy minutes underscored a balanced outlook, with board members indicating they could maintain the current rate for an extended period if incoming data strengthens. Assistant Governor Sarah Hunter cautioned that “sustained above-trend growth could reignite inflationary pressures,” though she emphasized the central bank won’t overreact to isolated monthly figures.

Interbank rate futures pricing reflects this stability: the December 2025 ASX 30-Day Interbank Cash Rate contract traded at 96.41 on November 26, implying only a 6% probability of a 25 basis-point reduction to 3.35%.

Manufacturing Activity Strengthens Across the Economy

Australian PMI data released this month added to the positive picture. The S&P Global Manufacturing PMI rebounded to 51.6 in November from 49.7 previously, signaling expansion rather than contraction. Services PMI improved to 52.7 from 52.5, while the Composite PMI rose to 52.6 from 52.1—all indicating steady economic momentum.

These readings suggest Australia’s labour market remains resilient despite recent employment softening, providing the RBA with confidence to maintain its steady-handed approach to policy.

Technical Setup Suggests Further Upside Potential

The AUD/USD pair has broken above its nine-day Exponential Moving Average, demonstrating strengthening short-term momentum. The pair is trading within a rectangular consolidation zone on the daily chart, presenting a neutral technical backdrop with clear directional boundaries.

Resistance levels: The upper boundary of the consolidation rectangle sits near 0.6630. A breach above this level could open the door to further appreciation.

Support levels: The nine-day EMA aligns with the psychological 0.6500 barrier. A breakdown below this confluence could trigger a slide toward the rectangle’s lower boundary around 0.6420, with the five-month low of 0.6414 (set on August 21) representing the next downside target.

Broader Currency Market Dynamics

Among major currencies, the Australian Dollar has emerged as today’s strongest performer, appreciating 0.33% against the US Dollar. The AUD also gained ground against the Canadian Dollar (0.28%), New Zealand Dollar (0.20%), Euro (0.13%), and British Pound (0.13%). This broad-based strength underscores the appeal of AUD-denominated assets, including consideration by investors tracking bitcoin price AUD movements and other commodity-linked exposures.

The divergence between Fed rate cut expectations and RBA rate hold bets provides a structural tailwind for the Australian Dollar, as the interest rate differential favours holding AUD versus seeking USD returns. This dynamic is likely to persist should the Fed proceed with December cuts while the RBA signals patience on policy adjustments.