The Australian Dollar is weakening due to a stronger US Dollar and new economic data from both China and Australia. In December, China’s Consumer Price Index (CPI) increased by 0.8% year-over-year, which is below the expected 0.9%. At the same time, Australia’s Trade Surplus dropped to 2,936M in November, with exports down by 2.9% and imports slightly rising. Inflation data from Australia is mixed, leaving the Reserve Bank of Australia uncertain about its future policies. Attention now turns to upcoming quarterly CPI data. In the US, the Dollar is gaining strength due to strong job market statistics. The US Dollar Index is around 98.90, boosted by US labor reports ahead of the Nonfarm Payrolls.

US Labor Market and PMI Data

Job growth is expected to be around 60,000 for December, slightly lower than the 64,000 seen in November. The US Department of Labor reports that Initial Jobless Claims have risen to 208,000, along with higher Continuing Jobless Claims. At the same time, the US Services PMI has increased to 54.4. The Australian Dollar is facing resistance after dropping below 0.6700, suggesting it may weaken further. The value of the AUD is also affected by the price of iron ore, a significant Australian export, and China’s economic situation. Australia’s CPI stayed stable month-on-month in November, with building permits seeing a sharp increase. With the Australian Dollar struggling against a rising US Dollar, this trend may continue as we await crucial US job data. We’re anticipating further weakness in the AUD/USD pair in the upcoming weeks. The lower-than-expected inflation in China for December 2025 raises concerns about their economic recovery, which directly affects confidence in the AUD. This slow performance is evident in other figures, as China’s Caixin Manufacturing PMI for December 2025 shows a slight increase at 50.8, indicating only marginal growth. The economic weakness in Australia’s biggest trading partner is a significant challenge. As a result, iron ore prices have dropped, currently trading around $136 per tonne, down from late 2025 highs. This decrease weakens support for the Australian Dollar. We are monitoring this situation closely, as any further decline in commodity prices will put more pressure on the currency.

US Economic Strength

In contrast, the US Dollar is gaining strength thanks to a strong services sector and a solid labor market. Even though weekly jobless claims have slightly increased, the overall numbers indicate a tight job market, supported by consistently low unemployment over the past two years. This robust economy creates challenges for risk-sensitive currencies like the AUD. The market is preparing for the upcoming US Nonfarm Payrolls report, which often causes a lot of volatility. Looking back to early 2024, a much better-than-expected jobs report changed expectations for the Fed and drove the dollar higher. This makes strategies like short-term options, such as straddles, an interesting approach to take advantage of potential market shifts. The Reserve Bank of Australia is signaling that rate cuts are not on the horizon, which should support the currency. However, the market is more focused on the Federal Reserve, which is anticipated to maintain rates while some may call for easing. This difference in narrative currently favors the US dollar’s appeal as a safe haven. Technically, we see the AUD/USD pair testing support at the 0.6690 level. A decisive break below this could lead to a move toward the 50-day moving average near 0.6628. Buying put options with a strike price around 0.6650 may be a good strategy to benefit from this potential downturn. On the flip side, if the US payroll data disappoints significantly, we may see a sharp reversal and a squeeze on short positions. A return above the 0.6700 level would signal a restart of bullish momentum. In that case, call options could be used to profit from a rebound towards the 0.6760 resistance area. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now