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    Steady market conditions lead to increased risk appetite, pushing the Australian Dollar above 0.6700 on RBA expectations.

    by VT Markets
    /
    Jan 2, 2026

    Understanding Central Banks

    A central bank’s main job is to keep prices stable by changing policy rates to control inflation or deflation. When they adjust interest rates, it impacts the economy by affecting how banks lend money and the interest on savings. There are different opinions within central banks, often represented by ‘hawks’ who support raising rates and ‘doves’ who prefer lower rates. A chairman or president oversees discussions and shares important decisions. The Australian dollar is becoming much stronger compared to the US dollar. This change is mainly due to differing approaches by the central banks. The Reserve Bank of Australia is signaling that it might raise rates to fight inflation, while the US Federal Reserve is expected to keep lowering rates. This difference suggests that investing in the Australian dollar could be a good move in the coming weeks. Governor Bullock’s recent strong statements remind us of the swift rate increases we saw in 2022 and 2023, when the RBA quickly raised its cash rate by more than 400 basis points. With inflation for Australian consumers hitting 3.8% in October 2025, another high figure in next week’s November report could lead the RBA to take action. Traders may want to consider buying AUD/USD call options to benefit from a potential rise after that data is released. Meanwhile, the US dollar seems weak as the Federal Reserve continues to cut interest rates. Even with solid economic indicators, like steady jobless claims around 210,000, there is political pressure for further rate cuts. The expected replacement of Chairman Powell in May with a more dovish leader adds to the reasons for a weaker dollar.

    Market Dynamics Between The US And Australia

    The key issue for us is the growing difference in policies between the two central banks, which is pushing the AUD/USD pair above the crucial 0.6700 level. The upcoming Australian inflation report is the most important event in the near future. If the report shows higher-than-expected inflation, it will likely boost this rally even more. Create your live VT Markets account and start trading now.

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