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Aussie dollar stabilises on RBA outlook
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Daily Currency Update
The Australian dollar was little changed against the US dollar on Thursday, as it attempted to stabilise after several days of declines. The AUD/USD pair traded in a narrow range, hovering just above a key support zone below the 0.6600 level, as traders looked for signs that the recent sell-off may be losing momentum.After peaking at 0.6679 on December 10, the Australian dollar has endured a five-day losing streak, pressured by broad US dollar strength and cautious market sentiment. However, Thursday’s sideways movement suggests that selling pressure may be easing. At the time of writing, the AUD/USD was trading around 0.6613, reflecting a tentative effort to regain balance.
Support for the Australian dollar could emerge as expectations build around an earlier-than-anticipated interest rate hike from the Reserve Bank of Australia (RBA). Market attention has increasingly turned to the central bank’s policy outlook following its final meeting of 2025, where officials opted to keep rates on hold but struck a noticeably hawkish tone. The RBA acknowledged persistent inflation pressures and ongoing capacity constraints in the domestic economy, signalling that tighter monetary policy may be needed sooner rather than later.
Major Australian banks have since adjusted their forecasts. Both the Commonwealth Bank of Australia and National Australia Bank now expect the RBA to begin raising interest rates as early as February, bringing forward previous projections. Their revised outlook reflects concerns that inflation remains stubbornly high and that economic conditions may warrant a faster response from policymakers.
Financial markets are gradually aligning with this view. Interest rate swaps currently imply a 28% chance of a rate hike in February, rising to nearly 41% in March. By August, a rate increase is almost fully priced in, suggesting that investors see tightening as increasingly inevitable over the coming months.
While near-term direction for the Australian dollar will likely continue to be influenced by US dollar movements and global risk sentiment, shifting expectations around RBA policy could provide a stabilising force. If incoming economic data reinforces the case for earlier tightening, the Aussie may find firmer footing and attempt to reclaim lost ground.
For now, the Australian dollar remains in a holding pattern, with traders balancing cautious optimism over domestic monetary policy against broader global uncertainties.
Key Movers
The US dollar steadied near the highs reached in the previous session, as investors adopted a cautious stance ahead of today’s closely watched US consumer price inflation data for November. With inflation trends playing a central role in shaping expectations for Federal Reserve policy, the release is expected to set the tone for markets in the near term.Headline and core CPI are both forecast to remain around 3% year-on-year in November, reinforcing the view that progress toward the Fed’s 2% inflation target has slowed. While inflation has come down significantly from its peak, recent data suggest it has become somewhat sticky, raising questions about how quickly price pressures will ease from here. As a result, markets are carefully assessing whether the current environment supports a shift toward lower interest rates.
Despite inflation remaining above target, there are few clear signs that price pressures are re-accelerating. This distinction is important for policymakers, as it suggests that while inflation progress may have stalled, upside risks remain contained. In this context, the Federal Reserve retains some flexibility to ease policy later on, should economic conditions warrant it.
Supporting this more balanced outlook, recent survey data point to a gradual moderation in inflation pressures. The Institute for Supply Management’s prices paid indexes have continued to trend lower, indicating that businesses are facing less upward pressure on input costs. These readings suggest that inflationary forces within the supply chain are easing, even if consumer-level prices are proving slower to adjust.
For currency markets, the US dollar’s resilience reflects a combination of caution and positioning ahead of the CPI release. A firmer-than-expected inflation print could reinforce expectations that interest rates will remain higher for longer, providing near-term support for the greenback. Conversely, a softer outcome may revive speculation around earlier rate cuts, potentially weighing on the dollar.
Looking ahead, today’s CPI data will be a key input into the Fed’s policy deliberations as it seeks to balance the risks of easing too soon against the danger of keeping policy overly restrictive. With inflation still above target but no longer accelerating, the central bank faces a delicate task in navigating the next phase of the economic cycle.
For now, markets remain in a wait-and-see mode, with the US dollar holding steady as investors await clearer signals on the path inflation and monetary policy will take in the months ahead.
Note: This is our final daily market commentary for 2025. Thank you for reading, enjoy the holiday period and have a prosperous start to the new year.
Expected Ranges
- AUD/USD: 0.6500 – 0.6700 ▼
- AUD/EUR: 0.5550 – 0.5750 ▼
- GBP/AUD: 2.0150 – 2.0350 ▲
- AUD/NZD: 1.1350 – 1.1550 ▲
- AUD/CAD: 0.9000 – 0.9200 ▼
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