Australian dollar steadies below recent highs as markets digest RBA signals and soft China inflation
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Daily Currency Update
The Australian dollar took a bit of a breather on Wednesday, trading almost flat after climbing to its highest level in nearly two months. At the time of writing, the AUD sits around US$0.6679, holding steady as markets digest a wave of central-bank news and fresh economic data from abroad. This pause comes after a strong run for the currency. Over the past few weeks, the Australian dollar has gained more than 3% from its November lows, helped by improved risk appetite and expectations that Australia’s interest-rate outlook may turn more supportive in the coming year. Tuesday’s quiet price action doesn’t erase that momentum; rather, it reflects traders taking stock of the latest signals from the Reserve Bank of Australia (RBA) and from China, Australia’s largest trading partner. As expected, the RBA kept the cash rate unchanged at its policy meeting. What captured the market’s attention, however, was the tone of Governor Michelle Bullock. She noted that inflation pressures remain a concern and warned that price growth could stay sticky for longer than policymakers would like. Her comments suggested that the central bank is still prepared to raise rates again, if necessary, though any move would likely come in the second half of 2026, giving the economy time to adjust to current policy settings. Initially, the AUD jumped on the RBA’s message, as traders interpreted the bank’s stance as slightly more hawkish than before. But those gains were trimmed once new inflation data from China hit the wires. China’s figures painted a picture of uneven economic recovery. While annual inflation ticked higher in November based on the Consumer Price Index, monthly inflation slipped back, and deflation in producer prices deepened. These trends point to continued weakness in household spending and industrial demand—developments that matter greatly for Australia, given its close trade links and reliance on Chinese commodity demand. For currency traders, the contrast between Australia’s steady-handed central bank and China’s softer inflation landscape created a bit of push-and-pull. On one hand, the RBA’s willingness to keep a firm stance on inflation supports the Australian Dollar. On the other, China’s sluggish price data raises questions about global demand, which can limit the Aussie’s upside, especially because the currency is often seen as a barometer of risk appetite and commodity market strength. All told, the Australian dollar’s consolidation below recent highs appear more like a natural pause than a reversal. With the RBA maintaining a cautious but attentive approach, and with global economic signals mixed, markets will likely continue watching both domestic inflation trends and China’s recovery path for clues about where the currency heads next.Key Movers
The US Federal Reserve delivered its third consecutive interest-rate cut on Wednesday, lowering its benchmark rate once again but signalling that a pause may be on the horizon. While the move brings borrowing costs to their lowest level in nearly three years—now sitting at roughly 3.6%—the Fed also hinted that it may hold rates steady over the coming months. That message could set up tension with President Donald Trump, who has repeatedly pushed for deeper and faster cuts to support economic growth. Following the conclusion of its two-day policy meeting, the Fed’s rate-setting committee released a statement that suggested officials are becoming more cautious about additional reductions. Alongside the announcement, the central bank also published its quarterly economic projections, which showed that policymakers expect just one further rate cut next year. This more measured stance marks a shift from earlier in the year, when the Fed had been more aggressive in easing policy to counter slowing growth and above-target inflation. For consumers, lower interest rates can gradually translate into more affordable borrowing. Mortgages, car loans, and credit card rates often drift downward as the Fed cuts its benchmark rate, though market conditions and lender decisions also play a role. The latest reduction will take some time to filter through the financial system, but it may eventually provide relief to households feeling pressure from higher living costs. One challenge for the Fed has been the limited amount of fresh economic data available since the federal government shutdown ended on November 13. With official reports delayed for weeks, policymakers have been forced to rely on partial indicators and private-sector surveys, which has contributed to differences of opinion within the committee. Some officials are concerned about signs of cooling in the job market, while others believe underlying economic conditions remain relatively resilient. When Fed officials meet again in late January, they are expected to have nearly three months’ worth of delayed data to review. The direction of that data could play a pivotal role in determining their next steps. If hiring has slowed meaningfully or the labour market shows signs of stress, the central bank may feel compelled to lower rates again. On the other hand, if employment stabilises and inflation remains higher than desired, policymakers may decide to pause rate cuts for several months. For now, Wednesday’s decision reflects the Fed’s effort to strike a balance—providing continued support for the economy while avoiding cutting so deeply that it risks fuelling inflation or creating financial imbalances. Markets will be watching closely in the coming weeks as new data is released, and the path ahead becomes clearer.Expected Ranges
- AUD/USD: 0.6600 - 0.6800 ▲
- AUD/EUR: 0.5600 - 0.5800 ▲
- GBP/AUD: 1.9950 - 2.0150 ▼
- AUD/NZD: 1.1400 - 1.1600 ▲
- AUD/CAD: 0.9100 - 0.9300 ▲