The Australian Dollar (AUD) gained strength against the US Dollar following a rise in Australia’s TD-MI Inflation Gauge to 3.5% year-over-year in December. Monthly, inflation surged by 1.0%, marking the fastest pace since December 2023. China, Australia’s largest trading partner, reported a GDP rise of 1.2% for Q4 2025, surpassing market expectations. This economic growth in China positively impacted the AUD\/USD exchange rate.<\/p>\n
China’s Industrial Production increased by 5.2% year-over-year in December, supported by strong manufacturing activity. However, China’s Retail Sales grew by 0.9%, falling short of forecasts. In the US, the Dollar Index weakened due to intensified risk aversion amidst uncertainties surrounding US\u2013Greenland relations. US President Trump announced tariffs on certain EU countries opposing a potential US acquisition of Greenland.<\/p>\n
US labour data showed initial jobless claims unexpectedly fell to 198,000 in early January. Core inflation held steady at 2.6%, while CPI increased by 0.3% monthly in December. The Reserve Bank of Australia (RBA) noted inflation above its target, with predictions of only one more rate cut in the near term. The AUD\/USD traded around 0.6680, with possible support at 0.6642 and potential gains targeting past highs.<\/p>\n
Interest rates, Chinese economic health, and trade balance are influential factors for the AUD’s value. Australia\u2019s Iron Ore exports, particularly to China, heavily impact AUD fluctuations. A positive trade balance strengthens the AUD, while a negative balance has the opposite effect.<\/p>\n
We are seeing a clear divergence between the Australian and US dollars. The Aussie is benefiting from hotter-than-expected inflation data, which increases the likelihood that the Reserve Bank of Australia will keep interest rates high or even raise them. This makes the Australian dollar more attractive to hold for yield.<\/p>\n
The positive news from China, our most important trading partner, further supports this view. China\u2019s Q4 2025 GDP and industrial production figures beat expectations, suggesting strong demand for Australian resources will continue. In fact, iron ore prices, a key driver for the AUD, have remained resilient, trading above $130 per tonne through most of late 2025, which provides a solid backdrop for the currency.<\/p>\n
Meanwhile, the US dollar is facing headwinds from self-inflicted uncertainty. The escalating tariff threats related to Greenland are reminiscent of the market volatility seen during the major US-China trade disputes of 2018-2019, causing investors to doubt the dollar’s stability. This geopolitical risk, originating from the US itself, is making traders look for safer assets elsewhere.<\/p>\n
This is happening as US inflation shows clear signs of easing, with the core rate holding at a four-year low of 2.6% in December 2025. This gives the Federal Reserve more reason to consider cutting rates later this year, creating a stark contrast with the RBA’s more hawkish stance. The widening gap between the two central banks’ expected policies is a powerful catalyst for a stronger AUD\/USD.<\/p>\n
For derivative traders, this situation suggests buying AUD\/USD call options to capitalize on potential upside. A strike price just above the 0.6690 resistance level could be a cost-effective way to play a move towards the 0.6766 target. This strategy allows us to benefit from a rally while defining our maximum risk to the premium paid for the option.<\/p>\n
To manage risk, we should watch the 50-day EMA at 0.6642 closely. A decisive break below this level would signal that the bullish momentum has faded. We could use this as a trigger to exit long positions or purchase protective put options to hedge against a potential downturn.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" AUD strengthens as inflation rises; China’s growth boosts sentiment; US Dollar weakens amidst geopolitical uncertainty.<\/p>\n","protected":false},"author":62,"featured_media":16964,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-39505","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/39505","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/comments?post=39505"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/39505\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media\/16964"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media?parent=39505"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/categories?post=39505"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/tags?post=39505"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}