The AUD/USD pair is drawing new buyers after mixed Australian jobs data, staying stable above the mid-0.6600s. It is near a three-month high, supported by the Reserve Bank of Australia’s (RBA) strong stance and a positive market mood. The US Dollar is under selling pressure due to expectations of a dovish Federal Reserve, with traders expecting two rate cuts next year. This positive market environment helps the Australian Dollar. The RBA’s decision to hold rates and consider future hikes bolsters the AUD.

Economic Influences

Key factors affecting the Australian currency are the interest rates set by the RBA and the price of iron ore, its biggest export. The condition of China’s economy, Australia’s main trading partner, also affects the AUD. A good trade balance strengthens the currency, while overall market sentiment can lead to risk aversion. On Friday, no US economic data will be released, leaving the US Dollar reliant on speeches from FOMC members. Overall market sentiment will influence USD demand and provide short-term trading opportunities for the AUD/USD pair as the weekend approaches. As of December 12, 2025, the Australian dollar is showing strength, maintaining its position above the mid-0.6600s against the US dollar. This upward trend is mostly due to a clear difference in central bank policies. The market increasingly expects the US Federal Reserve to cut rates into 2026, while the Reserve Bank of Australia (RBA) remains on a hawkish path. For over a year, the RBA has kept its cash rate steady at 4.35%, contrasting with the Fed, which has already started cutting rates from 2024’s highs. Australian inflation remains stubborn, with recent quarterly core inflation at 3.5%, still above the RBA’s target. This supports Governor Bullock’s comments about being more likely to raise rates than cut them, providing a boost for the Aussie.

Weakening US Dollar

The US dollar continues to weaken due to soft economic expectations. Markets are pricing in at least two more Fed rate cuts for 2026, despite the Fed’s more cautious outlook. Concerns about the US labor market contribute to downward pressure on the greenback. The Aussie outlook is further supported by strong commodity prices and signs of recovery from its largest trading partner. Iron ore, Australia’s biggest export, remains strong, trading around $135 per tonne due to renewed demand. Recent data shows China’s manufacturing PMI rose to 50.5, indicating slight growth that could increase demand for Australian resources. For derivative traders, this environment suggests positioning for continued AUD strength in the coming weeks, though it may be slower. Buying AUD/USD call options with strike prices near the 0.6750 level for January or February 2026 offers a chance to take advantage of potential gains. This strategy allows us to limit our risk to the premium paid while staying invested in the upward trend. Alternatively, the difference between the RBA and the Fed may lead to increased volatility. A bull call spread can lower the upfront cost of the position by buying a call and selling a higher-strike call. This limits potential profit but improves our risk-reward balance if we expect a gradual increase toward the 0.6800 mark. Create your live VT Markets account and start trading now.

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