The Australian Dollar rose against the US Dollar after the People’s Bank of China kept its Loan Prime Rates steady at 3.00% for one-year and 3.50% for five-year terms. Traders anticipate the Reserve Bank of Australia’s Meeting Minutes for insights on inflationary pressures and potential rate changes.
Meanwhile, the US Dollar Index fell to around 98.60, breaking a three-day winning streak. As the US awaits the third-quarter GDP data, the Federal Reserve Bank of Cleveland said they are pausing to assess rate cuts’ effects. The US Consumer Price Index decreased to 2.7%, missing the market’s 3.1% forecast.
Technical Overview for AUD/USD
Technically, the AUD/USD pair floated below 0.6620 with neutral-to-bullish conditions as indicated by a 14-day RSI of 57.05. A break above 0.6620 could push momentum toward highs of 0.6685, whereas slipping below could lead to decreases near 0.6414.
The Reserve Bank of Australia sets interest rates, influencing the Australian Dollar’s value through inflation and economic data. Quantitative easing typically weakens the AUD, whereas quantitative tightening has the opposite effect.
Given the divergence between central banks, the primary strategy for the coming weeks should focus on the widening policy gap between the Reserve Bank of Australia and the US Federal Reserve. We see the RBA grappling with persistent inflation, with Australia’s latest Q3 2025 CPI data showing inflation remains sticky at 3.9%, well above the target band. This contrasts sharply with the US, where November’s CPI eased to 2.7%, giving the Fed room to stay on hold.
The main event will be the RBA’s meeting minutes tomorrow, which will be critical for Aussie dollar direction. Traders should be prepared for volatility, as any hawkish language could rapidly increase the 27% probability of a February 2026 rate hike. This uncertainty makes short-dated options, like weekly straddles on the AUD/USD, an interesting way to trade a potential price swing without betting on the direction.
Impact of Central Bank Policies
On the US side, the dollar’s weakness seems justified as the Fed is clearly in a wait-and-see mode. The recent miss in November retail sales, which came in at just 0.1% growth, further supports the case for the Fed to pause its policy adjustments. With markets pricing in a 79% chance of no change at the January meeting, any strength in the US dollar is likely to be temporary and seen as a selling opportunity.
We also need to keep an eye on China, as the PBoC holding rates steady provides underlying support for the Australian dollar. This stability is important for Australian commodity exports, which have benefited from the modest recovery we’ve seen in recent Chinese industrial production figures. A healthy Chinese economy provides a fundamental buffer for the Aussie, even if the RBA turns less aggressive.
Technically, the AUD/USD is coiled for a move, hovering around the 0.6620 mark. Call options with strike prices above the 0.6685 three-month high could be a good play if the RBA minutes signal a continued inflation fight. Conversely, if the pair breaks below the current ascending channel, put options targeting the 0.6414 six-month low would offer downside protection.
We should remember the lessons from the high-inflation period of 2022 and 2023, which showed how quickly central bank narratives can shift. Back then, central banks were moving in lockstep to tighten policy, but now we are entering a phase of significant divergence. This divergence between national economies is what will likely drive forex markets through the first quarter of 2026.
