Australian Dollar Stabilizes as US Dollar Edges Higher Amid Risk Aversion
GlobePRwire
The Australian Dollar (AUD) struggled against the US Dollar (USD) on Wednesday despite ongoing concerns surrounding US–Greenland tensions and global risk aversion.
Market participants are closely monitoring economic indicators from both Australia and the United States, alongside developments in China, which remains a key trading partner for Australia. LFtrade brokers outline the essential points of the topic with precision and insight.
AUD Edges Lower After Two Days of Gains
The AUD/USD pair traded around 0.6740 on Wednesday, showing a slight pullback after two consecutive days of gains. Technical analysis indicates that the pair is trading above the nine-day Exponential Moving Average (EMA), signaling a short-term bullish bias, while the 14-day Relative Strength Index (RSI) at 62.90 reinforces the underlying upside momentum.
Upside targets for the AUD/USD remain near the 15-month high of 0.6766, with immediate support at the nine-day EMA of 0.6712. A sustained close below this short-term average could push the pair toward the 50-day EMA at 0.6651, with deeper losses potentially reaching 0.6414, the June 2025 low.
Australian Economic Data Shows Gradual Recovery
The Westpac–Melbourne Institute Leading Economic Index rose 0.1% month-on-month (MoM) in December 2025, after remaining flat in November. The six-month annualized growth rate climbed to 0.42% from 0.20%, indicating that the economic recovery seen through 2025 is extending into early 2026.
Meanwhile, Australia’s TD-MI Inflation Gauge climbed to 3.5% year-over-year (YoY) in December, accelerating from 3.2% previously. Every month, inflation jumped 1.0% MoM, the fastest increase since December 2023, signaling renewed upward pressure on prices.
This trend reinforces expectations that the Reserve Bank of Australia (RBA) may maintain a tighter monetary policy stance to contain inflation, which remains above the 2–3% target band.
The RBA has indicated that while headline CPI slowed to 3.4% YoY in November, trimmed mean CPI remains elevated at 3.2%, signaling persistent underlying inflationary pressures.
Policymakers project that underlying inflation will stay above 3% in the near term, gradually easing to around 2.6% by 2027. Consequently, the RBA anticipates only one additional rate cut this year, as global economic risks diminish but domestic inflation remains a concern.
Chinese Economic Data Provides Indirect Support for AUD
China, Australia’s largest trading partner, continues to influence AUD movements. The People’s Bank of China (PBOC) maintained Loan Prime Rates (LPRs) at 3.00% for one-year and 3.50% for five-year, signaling a cautious stance amid ongoing economic recovery efforts.
Recent Chinese data showed Industrial Production growing 5.2% YoY in December, accelerating from 4.8% in November, supported by export-driven manufacturing. Retail Sales, however, rose 0.9% YoY, missing the forecast of 1.2%, while GDP expanded 1.2% quarter-over-quarter in Q4, slightly exceeding expectations. These mixed signals highlight the continued relevance of China’s economic trajectory in influencing AUD sentiment, particularly in commodity-linked sectors.
US Dollar Holds Ground Amid Escalating Geopolitical Concerns
Despite rising US–Greenland uncertainty and renewed trade tensions with the European Union (EU), the US Dollar (USD) held firm. The US Dollar Index (DXY), which tracks the USD against six major currencies, recovered its daily losses and traded around 98.60 at the time of writing.
The US President renewed his Greenland ambitions and threatened 10% tariffs on eight EU countries, intensifying fears of slower US economic growth and escalating trade disputes. Meanwhile, the European Parliament plans to suspend approval of a US trade deal from July, further heightening US–Europe tensions.
On the monetary policy front, the Federal Reserve (Fed) has signaled limited urgency to ease policy, with market expectations for rate cuts pushed back until June 2026. Morgan Stanley revised its forecast to one rate cut in June and another in September, adjusting from earlier expectations of cuts in January and April.
AUD/USD Outlook: Mixed Signals from Technical and Fundamental Analysis
The AUD/USD faces a complex interplay of fundamental and technical factors. On the one hand, domestic Australian economic data and inflationary pressures support the AUD. On the other hand, geopolitical risks in the US and global risk-off sentiment bolster the USD.
Technical indicators suggest a short-term bullish bias, with resistance at 0.6766 and support at 0.6712. Sustained strength above the nine-day EMA could prompt further gains toward recent highs, while a break below may reignite downside pressure toward 0.6651 and 0.6414.
Investors and forex traders are closely monitoring RBA policy guidance, US trade developments, and Chinese economic indicators, which collectively shape the trajectory of AUD/USD in the coming weeks.
Conclusion
The Australian Dollar is navigating a delicate balance between domestic economic resilience, global risk sentiment, and the US Dollar’s underlying strength. Traders should remain vigilant as technical levels and macro indicators continue to guide short-term movements in the AUD/USD pair.