The AUD/USD pair is currently trading above 0.6700, with the Australian Dollar showing a slight rebound. This increase is driven by expectations for a stricter monetary policy in Australia next year and the upcoming minutes from the Federal Reserve’s December meeting. The Australian Dollar’s rise is based on the belief that the Reserve Bank of Australia may keep its strict policies longer than other central banks. This confidence is bolstered by an unclear inflation outlook, with the bank prepared to tighten its policies if necessary.

Dollar Stability in the US

In the US, the Dollar remains stable as traders await insights from the Federal Reserve minutes. The Fed cut interest rates by 25 basis points during the December meeting, now targeting a range of 3.50%-3.75%, with only one additional cut expected in 2026. Market focus is also on upcoming political developments in the US, particularly regarding the announcement of Jerome Powell’s successor as the Federal Reserve Chair. The Australian Dollar has shown the most significant percentage change against the British Pound, indicating strength. The table below highlights that the AUD rose by 0.33% against the GBP. Overall, global economic conditions and political decisions continue to shape currency values and economic forecasts.

Central Bank Policy Divergence

The AUD/USD pair is holding steady near 0.6700, driven by a clear difference in central bank policies. The market believes that the Reserve Bank of Australia (RBA) will keep interest rates high into next year, while the US Federal Reserve (Fed) has already started cutting rates. This divergence is a key theme as we approach January 2026. The RBA’s firm approach is understandable given that inflation has been persistent. The latest quarterly CPI for Q3 2025 showed an inflation rate of 3.5%, significantly above the RBA’s target range of 2-3%, supporting their decision to maintain the cash rate at 4.35%. We will be looking closely at the upcoming Australian CPI data in January, as it could confirm or challenge this hawkish stance. Conversely, the Fed has eased its policies by cutting the key rate three times in 2025, now at a range of 3.50%-3.75%. This move reflects success in controlling US inflation, with the latest Core PCE reading for November 2025 showing a slowdown to 2.8%. Traders will carefully analyze the Fed meeting minutes for signs of whether the anticipated rate cut for 2026 represents a lower limit or an upper cap. The growing interest rate gap makes a long AUD/USD position attractive from a carry trade perspective. This means that holding the higher-yielding Australian Dollar against the lower-yielding US Dollar can result in positive returns. If upcoming data supports this policy divergence, this strategy is likely to gain popularity. Looking ahead, a significant factor for the US Dollar will be the expected announcement of a new Federal Reserve Chair in January. President Trump’s choice to replace Jerome Powell could significantly impact US monetary policy and create volatility in currency markets. As a result, we are factoring in higher premiums on options to cover this event risk. This situation is quite different from the synchronized interest rate hikes we saw in 2023. During that time, trading strategies were more straightforward. Now, understanding the unique economic trajectories of both countries is essential. We must stay alert to individual data releases from Australia and the US in the coming weeks. Create your live VT Markets account and start trading now.

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