The Australian Dollar is rising quickly, pushing the AUD/USD close to 0.6640, which is a gain of 0.45% during the European trading session. This uptick occurs as the US Dollar weaker compared to other currencies, even though the Federal Reserve is not expected to lower interest rates in January. The US Dollar Index, which measures the Greenback against six major currencies, is slightly down at around 98.45. The CME FedWatch tool shows only a 22.5% chance that the Fed will cut interest rates by 25 basis points to 3.25%-3.50% in January.

Key Economic Indicators

The Consumer Price Index in the US for November came in lower than anticipated, which has limited expectations for a dovish Fed. Analysts are closely watching the upcoming Q3 GDP data, which is expected to show annualized growth of 3.2%, down from 3.8% last quarter. The Australian Dollar continues to strengthen as inflation expectations rise. This hints at a potential interest rate increase by the Reserve Bank of Australia (RBA). Consumer Inflation Expectations have increased from 4.5% to 4.7%. Market participants are looking forward to the RBA’s meeting minutes for clues about Australia’s interest rate outlook. The Australian dollar’s strength against the US dollar is a key trend as we head into the new year. This shift is driven by the RBA’s need to possibly raise rates while the Federal Reserve likely stays put. This difference creates a clear opportunity for traders betting on a stronger AUD. The Aussie strength is also supported by strong commodity markets. Iron ore futures, an essential export for Australia, have recently risen above $130 per tonne due to stable demand from China, providing strong support for the currency’s gain.

Upcoming Economic Events

This week, we focus on two important events: the RBA meeting minutes and the US Q3 GDP data. We’ll be watching for any hawkish signs in the RBA minutes, which might encourage buying AUD/USD call options. If the US GDP report is weaker than expected—below 3.2%—it could further weaken the US dollar. The case for a slowing US economy is strengthening our view. US retail sales in November 2025 were nearly flat, and initial jobless claims have been rising in December 2025, averaging about 240,000. This indicates the Fed may have less flexibility to act aggressively compared to the RBA. In the derivatives market, bullish sentiment is already emerging. One-month risk reversals for AUD/USD have turned positive, indicating traders are now willing to pay more for calls than puts. This shows a growing belief that the Australian dollar’s upward trend has more room to grow. We’ve seen similar market conditions in the past, like during parts of 2021, when relative economic strength and commodity prices allowed the RBA’s outlook to diverge from the Fed’s. Given the current inflation data from Australia, we might be seeing this pattern repeat. Traders should prepare for the AUD to continue outperforming, especially if the upcoming data confirms this economic gap. Create your live VT Markets account and start trading now.

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