The Australian Dollar is showing strength, rebounding against the US Dollar due to a confluence of factors. A weaker US Dollar, influenced by geopolitical tensions and shifting expectations regarding interest rate policies, provides a supportive backdrop. Domestically, Australian inflation data is mixed, with some indicators suggesting a re-acceleration, adding pressure on the Reserve Bank of Australia (RBA) to consider further tightening. This contrasts with expectations of potential easing by the US Federal Reserve later in the year, further bolstering the Aussie.
- The Australian Dollar rose to around $0.669.
- A weaker US dollar, partly due to proposed tariffs on goods from several European countries, supported the Australian Dollar.
- Australia’s Monthly Inflation Gauge rose 1% month-on-month in December 2025.
- Consumer Inflation Expectations eased slightly to 4.6% in January.
- Inflation remains above the RBA’s 2% to 3% target.
- The RBA is expected to remain patient but faces pressure to tighten monetary policy.
- The market is starting to price in an RBA rate hike.
- The US Federal Reserve is expected to keep interest rates unchanged in the first quarter but may ease later in 2026.
The Australian Dollar is currently benefiting from a favorable divergence in monetary policy expectations. While the US Federal Reserve is anticipated to potentially ease its stance later in the year, the Reserve Bank of Australia is facing increased pressure to tighten monetary policy in response to persistent inflationary pressures. This situation creates a supportive environment for the Australian Dollar, at least in the short term, as higher interest rates typically attract foreign investment and strengthen a currency. However, economic data will be closely watched to see if this trend continues.