The AUD/USD is bouncing back after a tough period, as the US Dollar weakens due to worries about the Federal Reserve’s independence. A Department of Justice investigation into Fed Chair Powell has led to increased selling of the US Dollar, impacting its worth in global markets. Right now, AUD/USD is trading at about 0.6714, up nearly 0.35%. The US Dollar Index, which measures the Greenback against six major currencies, has dropped to around 98.88. The gap between the Federal Reserve’s and Reserve Bank of Australia’s policies benefits the AUD, particularly with expectations of possible rate hikes in Australia bolstering its value.

Federal Reserve and RBA Policies

The Federal Reserve is taking a careful approach, with mixed US labor data influencing expectations for rate changes. This year, about 50 basis points of easing are anticipated, but speculation about future rate adjustments is ongoing. In Australia, there are hints of a possible rate hike due to rising inflation concerns. The US Consumer Price Index (CPI) report, coming soon, will greatly impact the Fed’s policy decisions. Economic data from Australia, such as Westpac Consumer Confidence, will be released shortly, along with trade data from China. The economic relationship between Australia and China is crucial for the AUD’s future direction. Reflecting on 2025, worries about Fed independence caused a temporary dip in the US Dollar, but that issue has faded away. As of January 13, 2026, the key factor is the clear difference in policies between the central banks. The AUD/USD is steady around 0.6850, approaching its recent highs. The Federal Reserve’s plan for easing in 2025 didn’t unfold as expected, with stubborn inflation continuing through the latter half of the year. The US CPI data for December 2025 reported a 3.4% increase, leading the Fed to indicate it might pause any further rate cuts in early this year. This has strengthened the US Dollar, keeping the Aussie from rising more.

Aussie Dollar Support

On the other hand, the Reserve Bank of Australia (RBA) met last year’s hawkish expectations by making one last rate hike in November 2025. However, the latest quarterly inflation figures showed a slight drop to 3.8%, leading the market to believe that the RBA’s rate hikes are now complete. This makes the rate difference between the two countries less beneficial for the AUD than we expected six months ago. The Australian Dollar is receiving support from external factors, especially strong commodity prices and steady demand from China. Iron ore prices have remained strong, above $140 per tonne for the last two months, significantly higher than the 2025 average. China’s recent trade balance showed an unexpected 2.5% rise in imports, easing concerns about an economic slowdown. Given these mixed influences, we anticipate increased volatility in the AUD/USD in the coming weeks. The Fed’s firm stance poses downside risks, while high commodity prices provide solid backing for the currency. Traders using derivatives should explore strategies that capitalize on sharp price movements, such as buying straddles, rather than taking a clear directional stance on the pair. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now