AUD/USD Slides Below 0.6600 as US Dollar Strengthens: What's Driving the Currency Moves?

The Australian Dollar continues its downward trajectory against the US Dollar, marking the sixth consecutive day of losses for the AUD/USD pair. Despite signals that the Reserve Bank of Australia could tighten monetary policy as early as February, the currency has failed to gain meaningful support, reflecting the dominant strength of the greenback in global markets.

Technical Picture Turns Bearish for the Australian Dollar

From a technical standpoint, the AUD/USD pair has broken below a crucial confluence support zone near 0.6600, suggesting a shift in momentum. The pair is now trading beneath its nine-day Exponential Moving Average (EMA), while also positioned below the ascending channel that previously supported bullish sentiment.

If downside pressure persists, the Australian Dollar could test the psychological barrier at 0.6500 level, with further weakness potentially extending toward the six-month low of 0.6414 recorded in August. On the recovery side, resistance emerges at the nine-day EMA around 0.6619, and a move above this level could challenge the three-month high of 0.6685, followed by 0.6707—the strongest level since October 2024. Breaking through this area would bring the upper channel boundary near 0.6760 into focus.

Inflation Expectations Rise, But Market Focuses Elsewhere

Australia’s Consumer Inflation Expectations climbed to 4.7% in December, up from November’s three-month low of 4.5%, signaling persistent price pressures in the economy. This data reinforces the hawkish narrative around the RBA, with major Australian lenders—Commonwealth Bank and National Australia Bank—now positioning for rate increases sooner than previously anticipated.

Swap markets are pricing in approximately 28% probability of a February rate hike, with odds rising to nearly 41% for March. This reflects growing confidence that the RBA will move to combat stubborn inflation in a capacity-constrained economy. However, despite these inflation signals, the Australian Dollar remains under pressure, indicating that currency markets are being pulled in different directions by competing forces.

US Dollar Index Holds Ground Amid Fed Uncertainty

The US Dollar Index (DXY), which tracks the greenback’s performance against six major currencies, remains resilient around 98.40. This strength stems from diminishing expectations of additional Federal Reserve rate cuts in the coming months.

Recent labor market data painted a mixed picture: November payrolls grew by 64,000—slightly above forecasts—while October figures were revised significantly lower. The unemployment rate ticked up to 4.6%, the highest level since 2021, suggesting gradual cooling in employment gains. Retail sales came in flat month-over-month, reinforcing concerns that consumer demand is slowing.

Federal Reserve officials remain divided on the necessity for further monetary easing. The median Fed projection calls for just one rate cut in 2026, though some policymakers see no cuts at all. In contrast, traders anticipate two reductions. The CME FedWatch tool currently prices in a 74.4% probability of unchanged rates at the January meeting, up from roughly 70% a week prior.

Atlanta Fed President Raphael Bostic emphasized that while the jobs report presented a mixed signal, multiple surveys indicate rising input costs, with firms determined to protect margins through price increases. He cautioned against declaring victory over inflation prematurely, noting that price pressures extend beyond tariff-related factors. Bostic’s 2026 GDP forecast centers around 2.5%.

Cross-Border Economic Data Pressures Global Growth Outlook

China’s economic momentum appears to be waning. Retail Sales rose just 1.3% year-over-year in November—well below the 2.9% consensus and prior month’s reading—while Industrial Production came in at 4.8%, falling short of the 5.0% forecast. Fixed Asset Investment deteriorated to -2.6% year-to-date, missing the expected -2.3% decline and representing a more serious contraction than October’s -1.7%.

Meanwhile, Australia’s manufacturing activity showed modest improvement, with the S&P Global Manufacturing PMI edging up to 52.2 in December from 51.6. However, the Services PMI fell to 51.0 from 52.8, and the Composite PMI dropped to 51.1 from 52.6, suggesting broad-based softening across the Australian economy.

Employment data from Australia’s Bureau of Statistics revealed the Unemployment Rate held steady at 4.3% in November, beating the 4.4% consensus. Yet employment change painted a concerning picture, with a loss of 21,300 positions in November versus gains of 41,100 in October (revised), confounding the consensus forecast of a 20,000 increase.

Currency Performance Across Major Pairs

The Australian Dollar emerged as the weakest performer in today’s currency landscape, particularly struggling against the Japanese Yen. While the AUD weakened by 0.19% against the USD, it depreciated more sharply against the JPY. For context, conversion rates such as 103 USD to CAD highlight the broader strength of the US Dollar, which continues to appreciate against risk-sensitive currencies while trading more defensively against safe-haven assets.

The performance table reveals a bifurcated market: safe-haven currencies like the Japanese Yen and Swiss Franc held relatively steady, while commodity-linked and growth-sensitive currencies bore the brunt of sell-off pressure.

What Comes Next for AUD/USD?

The divergence between RBA hawkish expectations and AUD/USD weakness underscores a critical market dynamic: rate differentials alone cannot support a currency when global risk sentiment shifts and the US Dollar benefits from Fed hold expectations. Until the pair reclaims the 0.6619 EMA level, the technical bias remains bearish, with limited catalysts for a near-term reversal outside of a sharp deterioration in US economic data or an unexpected RBA rate move.