The Australian Dollar (AUD) rose against the US Dollar after Australia’s TD-MI Inflation Gauge increased to 3.5% year-over-year in December. Monthly inflation jumped by 1.0%, the fastest since December 2023. China’s economy, which plays a big role in Australia’s trade, grew by 1.2% in Q4 2025, beating predictions. This growth helped strengthen the AUD/USD exchange rate. China’s Industrial Production went up by 5.2% year-over-year in December, thanks to strong manufacturing. However, Retail Sales only grew by 0.9%, which was below what experts expected. In the US, the Dollar Index fell as concerns grew about US–Greenland relations. President Trump announced tariffs on EU countries that opposed a US plan to acquire Greenland.

US Labor Market and Inflation Data

Recent US labor data showed a surprising drop in initial jobless claims to 198,000 in early January. Core inflation remained steady at 2.6%, while the CPI rose by 0.3% in December. The Reserve Bank of Australia (RBA) remarked that inflation is above their target, expecting just one more rate cut soon. The AUD/USD was trading around 0.6680, with potential support at 0.6642 and possible gains aiming for higher levels. Interest rates, China’s economic condition, and the trade balance are crucial for determining the AUD’s value. Australia’s iron ore exports to China are especially significant in influencing AUD movements. A positive trade balance boosts the AUD, while a negative balance weakens it. There is a clear difference emerging between the Australian and US dollars. The Aussie is gaining from unexpected inflation data, increasing the chance that the RBA will keep rates high or even hike them. This makes the Australian dollar more appealing for investors looking for yield.

China Economic News and Its Impact on AUD

Good news from China, our largest trading partner, further supports this outlook. China’s Q4 2025 GDP and industrial production exceeded expectations, indicating continued strong demand for Australian resources. Iron ore prices, crucial for the AUD, have stayed steady above $130 per tonne for most of late 2025, providing a strong foundation for the currency. Meanwhile, the US dollar faces challenges from self-created uncertainties. The growing threats of tariffs over Greenland remind investors of the wild market swings during the major US-China trade disputes of 2018-2019. This uncertainty is making traders cautious about the dollar. US inflation is also showing signs of easing, with the core rate staying at a four-year low of 2.6% in December 2025. This situation gives the Federal Reserve more reasons to think about lowering rates later this year, contrasting sharply with the RBA’s more aggressive viewpoint. The widening gap between the two central banks’ expected actions is boosting the AUD/USD. For derivative traders, now is a good time to buy AUD/USD call options to take advantage of potential increases. A strike price just above the 0.6690 resistance level could cost-effectively bet on a move toward 0.6766. This strategy allows for profit from a rally while limiting our maximum risk to the option premium. To manage risk, it’s important to monitor the 50-day EMA at 0.6642. If this level is clearly broken, it would indicate that bullish momentum has slowed. This could serve as a signal to exit long positions or to consider purchasing protective put options to safeguard against potential declines. Create your live VT Markets account and start trading now.

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