The Australian Dollar dropped after hitting a 15-month high of 0.6932. This was due to strong PMI and employment data from Australia, hinting at tighter monetary policy from the Reserve Bank of Australia (RBA). On the other hand, the US Dollar rose as a safe haven, influenced by remarks from US President Donald Trump. Rumors about an intervention in the foreign exchange markets to help the Japanese Yen put pressure on the US Dollar. It’s said that the Federal Reserve Bank of New York conducted a rate check with major banks, which analysts see as a possible sign of market intervention.

Australia’s Macroeconomic Indicators

Australia’s recent PMI and employment data raised hopes for tighter monetary policy from the RBA. Although inflation has decreased from its 2022 peak, the Consumer Price Index (CPI) stood at 3.4% year-on-year in November, still higher than the RBA’s target of 2-3%. The US Dollar Index climbed back to about 97.10 following Trump’s tariff threats and differences in US economic data. In Q3 2025, the US GDP grew at an annualized 4.4%, exceeding expectations, while the PCE Price Index rose by 2.8% year-on-year in November. Australia’s PMI and employment data continued to reflect a strong economy, with 65,200 new jobs added in December. This success is linked to expected interest rate hikes from the RBA, which could support the Australian Dollar. The AUD/USD pair appeared overbought, with a 14-day Relative Strength Index (RSI) of 80.06, trading around 0.6920 on Monday. Analysts see a bullish trend within the ascending channel pattern, although support lies at the nine-day EMA of 0.6800.

Caution For Traders

The Reserve Bank of Australia affects the AUD by controlling monetary policy and adjusting interest rates, which impacts inflation and the flow of capital. Recent inflation data could help strengthen the currency, as central banks raise rates to attract investment. Macroeconomic data like GDP and employment figures show the economic climate and shape currency values. The RBA uses quantitative easing (QE) and quantitative tightening (QT) to influence the AUD, with QE generally weakening and QT strengthening it. Even though the Australian Dollar is at a 15-month high and technical indicators suggest it’s overbought, immediate gains might be limited. The 14-day RSI of 80.06 is a warning sign for traders. Historically, when the RSI reaches this level, it often precedes a period of price consolidation or a decline in the currency pair. The Australian Dollar’s strength is supported by impressive local economic data from late 2025. With a job increase of 65,200 and strong PMI figures, it seems likely that the RBA will continue its strict policy. The RBA has previously raised rates from 0.10% in 2022 to 4.35% in 2023 to combat inflation that exceeds the target. However, the US Dollar is also performing strongly, which could limit the AUD/USD rally. With the US economy showing robust growth—4.4% GDP growth in Q3 2025 and stable core inflation at 2.8%—markets have pushed back expectations for Federal Reserve rate cuts from early 2026 to mid-year, providing support for the US Dollar. Considering this balance, traders should take steps to protect their gains or prepare for a possible correction. Buying AUD/USD put options is a good strategy for profiting from a move back towards the 0.6800 support level. This is a more cautious approach than outright shorting the position, as Australia’s solid economic fundamentals could quickly resume their upward trend after any decline. Additionally, mixed economic signals and geopolitical comments from the US could spark more price fluctuations. For those expecting significant movement but uncertain about the direction, using volatility strategies might be effective. A long straddle, which involves buying both a call and a put option at the same strike price, would allow a trader to benefit from a major price move in either direction. Create your live VT Markets account and start trading now.

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