The Australian Dollar (AUD) strengthened against the US Dollar (USD) on Monday, following a series of influential economic releases. Market participants reacted to higher-than-expected domestic inflation in Australia, robust Chinese economic growth, and escalating geopolitical uncertainty impacting the Greenback. The Zeyphurs team presents a structured and informative breakdown of this matter.
TD-MI Inflation Gauge Boosts AUD
Australia’s latest TD-MI Inflation Gauge rose to 3.5% year-over-year (YoY) in December, up from 3.2% previously, signaling renewed upward pressure on prices. Every month, inflation surged 1.0% month-over-month (MoM), the fastest pace since December 2023, and a sharp acceleration from 0.3% in the prior two months.
The rise in inflation bolsters expectations that the Reserve Bank of Australia (RBA) may remain cautious in future monetary easing. Policymakers have highlighted that while headline CPI slowed to 3.4% YoY in November, underlying inflation remains elevated at 3.2%, slightly above the RBA’s 2–3% target band. Current market data indicate only a 22% probability of an RBA rate hike to 3.85%, reflecting tempered expectations despite the inflationary uptick.
Chinese Economic Data Supports AUD
The AUD/USD pair also benefited from positive Chinese economic indicators. Data from the National Bureau of Statistics revealed that China’s GDP rose 1.2% quarter-over-quarter (QoQ) in Q4 2025, accelerating from 1.1% in Q3 and surpassing market expectations of 1.0%. Annual GDP growth eased slightly to 4.5% YoY, above the forecast of 4.4%.
Other indicators show a mixed but largely positive picture: Industrial Production rose to 5.2% YoY, above estimates of 5.0%, driven by export-led manufacturing, while Retail Sales grew only 0.9% YoY, below the 1.2% forecast, reflecting sluggish domestic consumption.
Given Australia’s close trade ties with China, stronger Chinese economic activity often translates into higher demand for Australian commodities, underpinning the AUD. Traders closely monitor these developments, as any shifts in China’s growth trajectory can significantly affect AUD/USD momentum.
US Dollar Under Pressure from Risk Aversion
The US Dollar Index (DXY), which tracks the USD against six major currencies, slipped to around 99.20, reflecting increased risk aversion. The Greenback is facing headwinds amid escalating geopolitical tensions surrounding the US–Greenland issue.
The US President announced potential tariffs of 10% on eight European countries if Greenland acquisition proposals are opposed, affecting EU members Denmark, Sweden, France, Germany, the Netherlands, Finland, Britain, and Norway. Such geopolitical uncertainty has heightened market volatility, prompting investors to favor safer currencies like the AUD over the USD.
Meanwhile, US labor market data continues to show resilience. Initial Jobless Claims unexpectedly fell to 198K, below expectations of 215K, suggesting a tight labor market despite extended high borrowing costs. The Federal Reserve (Fed) has indicated that further rate cuts may not occur until June 2026, a delay from earlier market forecasts of January and April.
On the inflation side, U.S. Core CPI, which excludes food and energy, increased by 0.2% in December, coming in below market expectations. Meanwhile, annual core inflation remained at 2.6%, reaching its lowest level in four years, signaling continued easing in underlying price pressures.
Headline CPI rose 0.3% MoM, matching September’s increase, with annual CPI at 2.7%, in line with projections. This combination of slower inflation and robust labor conditions limits the scope for immediate monetary easing, further weighing on the USD.
Technical Outlook: AUD/USD Near Key Resistance
The AUD/USD pair is trading around 0.6680, consolidating near the nine-day Exponential Moving Average (EMA). Daily chart indicators suggest a neutral short-term bias, with the 14-day Relative Strength Index (RSI) at 52.78, supporting modest upside momentum.
Key technical levels for the Australian Dollar are support at 0.6642 (50-day EMA) and 0.6414, the June 2025 low, while resistance sits at 0.6690 (nine-day EMA), with a potential bullish breakout aiming for 0.6766, the October 2024 high.
If the AUD/USD surpasses the nine-day EMA, the pair could extend gains amid continued risk aversion and favorable Australian and Chinese data. Conversely, a breakdown below 0.6642 could signal short-term weakness, as traders reassess global risk sentiment and US monetary policy outlook.
Conclusion
The Australian Dollar has gained momentum against the US Dollar, supported by higher domestic inflation and potential RBA caution, alongside strong Chinese GDP growth and industrial production. Additionally, elevated geopolitical uncertainty in the US is fueling risk aversion, further benefiting the Aussie.
The USD remains under pressure, weighed down by delayed Fed rate cuts, geopolitical tensions, and moderate US inflation. Technical indicators suggest that AUD/USD may attempt to challenge key resistance levels, with traders closely monitoring both domestic and international economic developments.
In summary, the interplay of macroeconomic data, central bank guidance, and global risk sentiment is currently favoring the AUD over the USD, creating a bullish technical environment for Australian currency investors.
