AUD/USD Caught Between Technical Weakness and RBA Hawkish Signals—What's Next?

Technical Pressure Dominates as AUD/USD Slumps for Sixth Consecutive Day

The Australian Dollar has continued its downward trajectory against the US Dollar, marking its sixth straight session of losses. The AUD/USD pair is currently trading below the critical 0.6600 level, a confluence support zone that traders have been monitoring closely. This technical breakdown suggests the pair is now vulnerable to further declines.

On the daily chart, AUD/USD has slipped below both the ascending channel trend and the nine-day Exponential Moving Average (EMA) at 0.6619, signaling weakening momentum in the near term. Should sellers maintain control, the pair could test psychological support at 0.6500, with the six-month low of 0.6414 (recorded August 21) standing as a potential lower target. For those tracking conversion rates like 20k AUD to USD, the current weakness translates to lower valuations compared to recent weeks.

On the recovery side, a move back above 0.6619 could reignite bullish interest and push the pair toward the three-month high of 0.6685. Further strength would need to reclaim the ascending channel boundary near 0.6760 to restore the longer-term uptrend.

RBA Inflation Data Adds Hawkish Ammunition Despite Currency Weakness

Paradoxically, while the Australian Dollar weakens, the fundamental backdrop for the RBA is strengthening. Australia’s Consumer Inflation Expectations climbed to 4.7% in December, up from November’s three-month low of 4.5%, adding credibility to the central bank’s more aggressive stance.

This inflation reading has prompted major Australian financial institutions to revise their rate expectations. Commonwealth Bank of Australia and National Australia Bank now anticipate the RBA will begin tightening sooner than previously expected, particularly given persistent inflation pressures in a capacity-constrained economy. Market pricing reflects this shift: swap markets are currently embedding a 28% probability of a February rate hike, with March carrying a 41% likelihood, and August almost fully priced in for further moves.

The RBA’s hawkish hold at its final 2025 meeting last week further validated this outlook, even as the Australian Dollar remains under pressure. This disconnect—where supportive fundamentals exist despite currency weakness—presents an intriguing dynamic for AUD traders.

US Dollar Strengthens on Fading Rate-Cut Expectations

The US Dollar Index (DXY), measuring the greenback’s performance against six major currencies, is holding steady around 98.40, buoyed by diminishing expectations of further Federal Reserve cuts.

Recent labor market data painted a mixed picture. November’s US jobs report showed payroll growth of 64K, slightly beating forecasts, though October figures were revised significantly lower. The unemployment rate ticked up to 4.6%, the highest since 2021, suggesting a gradual cooling in labor demand. Retail sales remained flat month-over-month, indicating consumer demand is losing steam.

Fed officials remain divided on the need for additional monetary easing in 2026. The median official projection pencils in just one rate cut next year, while some policymakers see no cuts at all—a stark contrast to trader expectations of two cuts. The CME FedWatch tool shows fed funds futures pricing a 74.4% probability of rates staying unchanged at the January Fed meeting, up from 70% a week prior.

Atlanta Fed President Raphael Bostic highlighted that while the jobs report sends mixed signals, inflation concerns remain paramount. He cautioned against declaring victory on price pressures, noting that higher input costs and firm pricing power are sustaining inflation beyond tariff effects alone. His 2026 GDP projection stands at approximately 2.5%, suggesting modest growth ahead.

China’s Economic Slowdown Weighs on Regional Growth Sentiment

Adding to headwinds for the Australian Dollar is China’s sluggish economic performance. November retail sales rose just 1.3% year-over-year, falling short of the 2.9% forecast and prior month’s 2.9% reading. Industrial production expanded 4.8% annually, below the 5.0% expectation and prior 4.9%.

Fixed Asset Investment deteriorated further, printing at -2.6% year-to-date in November versus the -2.3% forecast and October’s -1.7%. These softer-than-expected figures highlight persistent weakness in China’s demand, a headwind for commodity-linked currencies like the Australian Dollar.

Australian Employment and Services Data Show Mixed Signals

On the domestic front, Australia’s preliminary S&P Global Manufacturing PMI edged up to 52.2 in December from 51.6, suggesting a modest uptick in factory activity. However, the Services PMI slipped to 51.0 from 52.8, while the Composite PMI fell to 51.1 from 52.6, indicating a loss of momentum across the broader economy.

The Australian Bureau of Statistics reported unemployment remained steady at 4.3% in November, better than the 4.4% consensus forecast. However, employment change swung sharply negative, declining 21.3K in November after an upwardly revised 41.1K gain in October, suggesting labor market resilience may be wavering.

The Bottom Line: Waiting for Clarity

The Australian Dollar faces a clash between technical weakness and fundamental support from RBA rate-hike expectations. While AUD/USD struggles at technical support near 0.6600, the central bank’s hawkish inflation signals and market pricing of near-term rate hikes could eventually provide a floor for the currency. Meanwhile, a stronger US Dollar—underpinned by fading Fed rate-cut bets and sticky inflation concerns—continues to weigh on the Aussie. Traders monitoring currency conversions and AUD/USD dynamics should watch for a potential bounce if the pair finds footing at lower support levels or if risk sentiment shifts decisively.