The Australian Dollar weakened against the US Dollar following a drop in Westpac Consumer Confidence by 1.7% in January, reaching a three-month low of 92.9. This follows a steep 9.0% decline in December due to changing interest rate expectations.
ANZ Job Advertisements in Australia fell 0.5% in December, after a revised 1.5% drop previously, while household spending rose slightly by 1.0% in November. The Reserve Bank of Australia’s policy outlook remains uncertain with mixed CPI figures for November, as Deputy Governor Andrew Hauser noted inflation data met expectations, and interest rate cuts seem unlikely.
The US Dollar Steady Amid CPI Data
The US Dollar Index held steady around 98.90, awaiting December’s CPI data for Federal Reserve policy guidance. Recent US Nonfarm Payrolls increased modestly by 50,000, alongside a dip in the unemployment rate to 4.4%, with average hourly earnings rising to 3.8% year-on-year.
AUD/USD traded around 0.6710, showing bullish tendencies towards an ascending channel with the Relative Strength Index supporting momentum at 60.55. Immediate support is at the nine-day Exponential Moving Average of 0.6705, while further drops may test the 50-day EMA at 0.6634. The forex market’s dynamics hinge on interest rates, resource prices, especially Iron Ore, and trade balances, influencing the Australian Dollar’s strength.
We are seeing clear signs of a slowing Australian economy, with consumer confidence at a three-month low and job advertisements declining for two consecutive months through December 2025. With the Reserve Bank of Australia unlikely to cut rates soon, all eyes are now on the quarterly CPI report due on January 31. A lower-than-expected inflation number could challenge the RBA’s firm stance and put significant pressure on the Australian dollar.
US Dollar Holds Strong Amid Inflation Concerns
The US Dollar is holding firm ahead of the critical US Consumer Price Index data being released today. Recent data shows that US Nonfarm Payrolls for December 2025 came in softer than expected at 50,000, but a surprise jump in the annual inflation rate to 3.5% for that month, as reported this morning, is challenging the market’s pricing of two Fed rate cuts this year. This stronger inflation reading makes the US dollar a more attractive holding in the short term.
External factors are also weighing on the Aussie. We saw iron ore prices, a key Australian export, drift lower in the final quarter of 2025 from around $125 to $115 per tonne. Additionally, China’s official Manufacturing PMI for December 2025 registered at 49.8, marking the third straight month of contraction and signaling weaker demand from Australia’s largest trading partner.
From a technical standpoint, the AUD/USD pair is hovering just above its crucial nine-day EMA support at 0.6705. While the pair remains in a broader uptrend channel, the combination of negative fundamental data and a strengthening US dollar suggests this support level is vulnerable. A decisive break below this level could trigger a rapid move toward the 50-day EMA at 0.6634.
Given the conflicting technical signals and the major event risk from inflation data in both countries, implied volatility is likely to increase. Derivative traders should consider strategies that benefit from a significant price move, such as buying options straddles. This allows for capitalizing on a breakout in either direction once the market digests the upcoming inflation reports and decides on a clear path.
