The Australian Dollar fell against the US Dollar after Westpac Consumer Confidence dropped by 1.7% in January, reaching a three-month low of 92.9. This follows a steep 9.0% decline in December due to shifting expectations for interest rates. In December, ANZ Job Advertisements in Australia decreased by 0.5%, following a revised 1.5% drop from the previous month. Meanwhile, household spending increased slightly by 1.0% in November. The policy outlook from the Reserve Bank of Australia (RBA) remains unclear, with mixed CPI results for November. Deputy Governor Andrew Hauser mentioned that inflation data met expectations, making interest rate cuts unlikely.

The US Dollar Steady Amid CPI Data

The US Dollar Index remained stable around 98.90, waiting for December’s CPI data for guidance on Federal Reserve policy. Recent US Nonfarm Payrolls saw a modest rise of 50,000, while the unemployment rate fell to 4.4%. Average hourly earnings increased by 3.8% year-over-year. AUD/USD traded near 0.6710, with signs of upward movement. The Relative Strength Index supports this at 60.55. Immediate support is at the nine-day Exponential Moving Average (EMA) of 0.6705, and further declines may test the 50-day EMA at 0.6634. The forex market’s movement depends on interest rates, resource prices like Iron Ore, and trade balances, which all affect the Australian Dollar’s strength. There are clear signs of a slowing Australian economy. Consumer confidence has hit a three-month low and job advertisements have declined for two straight months. With the RBA unlikely to lower rates soon, attention turns to the quarterly CPI report due on January 31. If inflation is lower than expected, it could pressurize the RBA’s firm stance and hurt the Australian Dollar.

US Dollar Holds Strong Amid Inflation Concerns

The US Dollar remains strong ahead of the important US Consumer Price Index data, set to be released today. Recent figures show US Nonfarm Payrolls for December 2025 were softer than expected at 50,000, but an unexpected rise in the annual inflation rate to 3.5% complicates predictions of two Fed rate cuts this year. This higher inflation makes the US Dollar more appealing in the short term. External factors are also impacting the Australian Dollar. Iron ore prices, a significant export for Australia, fell in the last quarter of 2025 from around $125 to $115 per tonne. Additionally, China’s official Manufacturing PMI for December 2025 was 49.8, marking three consecutive months of contraction and indicating weaker demand from Australia’s largest trading partner. From a technical point of view, the AUD/USD pair is hovering just above the critical nine-day EMA support at 0.6705. Although the pair remains in a broader uptrend channel, negative economic data and a stronger US Dollar suggest this support may be at risk. A significant drop below this level could lead to a swift move towards the 50-day EMA at 0.6634. Considering the mixed technical signals and the major event risk from inflation data in both countries, implied volatility is likely to rise. Traders should explore strategies that can benefit from large price moves, such as buying options straddles. This lets them capitalize on potential breakouts in either direction once the market reacts to the upcoming inflation reports. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now