The AUD/USD pair has attracted fresh buyers following mixed Australian jobs data, maintaining stability above the mid-0.6600s. The pair remains close to a nearly three-month peak, bolstered by the Reserve Bank of Australia’s (RBA) hawkish stance and a risk-on market mood.
The US Dollar faces selling pressure amid dovish Federal Reserve expectations, with traders anticipating two more rate cuts next year. This sentiment, alongside a positive market environment, benefits the Australian Dollar. The RBA’s decision to maintain rates and discuss potential rate hikes adds support to the AUD.
Influence Of Economic Factors
Australia’s economic factors that influence its currency include interest rates set by the RBA and the price of Iron Ore, its largest export. The health of China’s economy, Australia’s primary trading partner, also impacts the AUD. A positive Trade Balance strengthens the currency, while market sentiment drives risk aversion.
No US economic data is set for release on Friday, leaving the US Dollar dependent on FOMC member speeches. Broader risk sentiment will guide USD demand and offer short-term trading opportunities for the AUD/USD pair heading into the weekend.
Given the current situation on December 12, 2025, the Australian dollar is showing notable strength, holding firm above the mid-0.6600s against the US dollar. This upward momentum is largely driven by a clear divergence in central bank policy. The market is increasingly betting on the US Federal Reserve to continue cutting rates into 2026, while our own Reserve Bank of Australia (RBA) maintains a hawkish tone.
We’ve seen the RBA hold its cash rate steady at 4.35% for over a year, a stark contrast to the Fed, which has already initiated rate cuts from the highs we saw back in 2024. Australian inflation data has remained stubborn, with the latest quarterly figures showing core inflation at 3.5%, still well above the RBA’s target band. This justifies Governor Bullock’s recent comments about being more prepared for a hike than a cut, creating a significant tailwind for the Aussie.
US Dollar Weakening
On the other side of the pair, the US dollar continues to weaken on expectations of a softer economy. Markets are pricing in at least two more Fed rate cuts for 2026, even though the Fed’s own projections are more conservative. This sentiment is fueled by concerns over the US labor market, which keeps downward pressure on the greenback.
The outlook for the Aussie is further supported by strong commodity prices and signs of recovery from our largest trading partner. Iron ore, our biggest export, has remained resilient, trading around $135 per tonne on the back of renewed demand. Recent data showed China’s manufacturing PMI nudged up to 50.5, indicating a slight expansion that could boost demand for Australian resources.
For derivative traders, this environment suggests positioning for continued, albeit potentially slower, AUD strength in the coming weeks. Buying AUD/USD call options with strike prices around the 0.6750 level for January or February 2026 expiries offers a way to capitalize on further upside. This strategy allows us to define our risk to the premium paid while maintaining exposure to the bullish trend.
Alternatively, the divergence between the RBA and the Fed could lead to increased volatility. We could use a bull call spread to reduce the upfront cost of the position, which involves buying a call and simultaneously selling a higher-strike call. This caps our potential profit but improves our risk-reward profile if we expect a more gradual move higher toward the 0.6800 mark.
