The Australian Dollar (AUD) is experiencing pressure against the US Dollar (USD) as traders remain cautious before the Reserve Bank of Australia’s (RBA) decision on interest rates. The AUD/USD is currently near 0.6621, having ended a four-day winning streak, while markets anticipate the RBA maintaining a 3.60% interest rate.
RBA’s Forward Guidance
The focus is shifting to the RBA’s forward guidance, with speculation about potential tightening if domestic conditions remain steady. Meanwhile, the Federal Reserve is expected to cut rates by 25 basis points on Wednesday. These differing policy directions could affect the AUD/USD short-term outlook positively, especially if the RBA opts for a hawkish stance.
Technically, AUD/USD remains stable above the 0.6600 level, which serves as immediate support. This position supports a bullish sentiment, potentially allowing for a retest of the year’s high at 0.6707. However, if AUD/USD dips below 0.6600, it could trigger a decline toward the 0.6540-0.6530 support zone.
The Moving Average Convergence Divergence (MACD) suggests positive momentum, and the Relative Strength Index (RSI) around 65 indicates an upward bias without reaching overbought levels. The RBA’s interest rate decision, critical to AUD’s performance, is scheduled for December 9, 2025.
With the Reserve Bank of Australia and the Federal Reserve both set to announce policy this week, we should prepare for a potential increase in AUD/USD volatility. The main expectation is for a divergence in policy, with the RBA holding rates firm while the Fed is anticipated to deliver a 25 basis point cut. This fundamental difference is what underpins the current bullish outlook for the Aussie dollar.
Domestic Data Influence
Our confidence in a hawkish RBA stance is supported by recent domestic data. Looking back at the third quarter of 2025, inflation proved stickier than anticipated at 3.8%, and last month’s jobs report showed the unemployment rate holding at a low 3.9%. These figures give the RBA reason to sound tough on inflation, even if they keep the cash rate at 3.60% for now.
Conversely, the case for a Fed rate cut is strengthening based on recent US economic indicators. Last Friday’s Non-Farm Payrolls report for November showed a clear slowdown in hiring, and the latest Core PCE inflation reading continued its disinflationary trend, coming in at 2.7%. This gives the Fed the green light to begin easing policy, which typically weighs on the US dollar.
For derivatives traders, this sets up a clear strategy centered on the 0.6600 support level. We can consider buying AUD/USD call options with strike prices above the current level, such as 0.6700, to capitalize on a potential breakout towards the year-to-date highs. The low cost of these options could offer a leveraged bet on a hawkish RBA hold and a dovish Fed cut happening as expected.
The key risk is an unexpectedly dovish message from the RBA tomorrow. If the central bank signals concern about the economy, we could see a sharp drop below the 0.6600 support. In this scenario, holding put options with a strike price around 0.6550 would serve as a good hedge or a way to play the downside toward the moving average support cluster near 0.6540.
The broader environment also supports the Australian dollar, which should not be overlooked. Iron ore prices have remained resilient, trading above $125 per tonne for most of the fourth quarter of 2025, providing a significant tailwind for the currency. This strength in Australia’s key export adds another layer of support to our bullish thesis.
