The Australian Dollar declines due to a stronger US Dollar and economic data from China and Australia. China’s Consumer Price Index rose 0.8% year-over-year in December, below the 0.9% forecast. Meanwhile, Australia’s Trade Surplus narrowed to 2,936M in November, with exports falling 2.9% and imports increasing slightly.
Mixed November inflation from Australia leaves the Reserve Bank of Australia’s policy outlook uncertain, with focus shifting to upcoming quarterly CPI data. In the US, the Dollar gains strength on solid labour market data. The US Dollar Index trades around 98.90, bolstered by US labour reports ahead of the Nonfarm Payrolls.
US Labor Market and PMI Data
Expectations for job growth are forecast at 60,000 for December, down from 64,000 in November. The US Department of Labor reports a rise in Initial Jobless Claims to 208,000 and higher Continuing Jobless Claims. This coincides with the US Services PMI increasing to 54.4.
The Australian Dollar faces technical resistance after falling below 0.6700, indicating potential further weakening. The price of iron ore, a major Australian export, and China’s economic health also influence the value of the AUD. Australia’s CPI remained stable month-on-month in November, with building permits rebounding sharply.
The Australian Dollar is on the back foot against a strengthening US Dollar, and this trend appears set to continue as we await key US labor data. The immediate focus for us is on playing this divergence. We are positioned for further weakness in the AUD/USD pair in the coming weeks.
The lower-than-expected inflation from China in December 2025 reinforces concerns about their economic recovery, directly impacting sentiment for the Aussie. We’ve seen this sluggishness reflected in other data, with China’s Caixin Manufacturing PMI for December 2025 coming in at 50.8, showing only marginal expansion. This weakness in Australia’s largest trading partner is a significant headwind.
Consequently, iron ore prices have softened, pulling back from the highs we saw in late 2025 and now trading around $136 per tonne. This removes a key pillar of support for the Aussie dollar. We are watching this closely, as any further decline in commodity prices will add to the downward pressure on the currency.
US Economic Strength
On the other side, the US Dollar is gaining momentum from a robust services sector and a resilient labor market. Even with weekly jobless claims ticking up slightly, the numbers still point to a tight market, as seen in the last two years of consistently low unemployment. This underlying economic strength creates a challenging environment for risk-sensitive currencies like the AUD.
The market is bracing for the US Nonfarm Payrolls report, which has a history of causing significant volatility. We only have to look back to early 2024 to see how a much stronger-than-expected jobs number can rapidly shift Fed expectations and drive the dollar higher. This makes holding short-term options strategies, like straddles, to play a potential data-driven breakout an interesting proposition.
The Reserve Bank of Australia is signaling that rate cuts are not imminent, which should theoretically support the currency. However, the market seems more focused on the Federal Reserve, which is expected to hold rates while facing some calls for easing. This divergence in narrative is currently favoring the US dollar’s safe-haven appeal.
Given the technical picture, we are looking at the AUD/USD pair testing support at the 0.6690 level. A decisive break below this could open the door for a move towards the 50-day moving average near 0.6628. Buying put options with a strike price around 0.6650 could be a strategy to capitalize on this potential downside.
On the other hand, if US payrolls disappoint significantly, we could see a sharp reversal and a squeeze on short positions. A move back above the 0.6700 level would be the first signal of renewed bullish momentum. In that scenario, call options could offer a way to profit from a rebound towards the 0.6760 resistance area.
