AUD/USD weakens amid easing inflation and stronger US jobs data
AUD/USD ended last week lower at 0.6686, down 0.13%, after reaching a more than 15-month high of 0.6766 earlier in the week.
The pullback was initially triggered by Australia’s November monthly consumer price index (CPI) data, which eased concerns about immediate Reserve Bank of Australia (RBA) interest rate hikes. Headline CPI rose 3.4% year-on-year (YoY), below forecasts of around 3.7%, easing from 3.8% in the prior month, while the trimmed mean, the RBA’s preferred gauge, eased to 3.2% YoY from 3.3%.
Although both measures remain above the RBA’s 2% – 3% target band, the moderation in November after several hotter prints provided relief, prompting markets to temper expectations for an aggressive RBA tightening cycle in 2026.
Also contributing to the Australian dollar’s retreat was the US dollar finding support late last week after the December US non-farm payrolls report was not as disappointing as feared. Non-farm payrolls rose by 50,000, softer than expected but not disastrous, and the unemployment rate fell to 4.4% from 4.5%, better than the 4.6% forecast.
This virtually eliminated all expectations of a Federal Reserve (Fed) rate cut at the late-January Federal Open Market Committee (FOMC) meeting, lending support to the US dollar.
Outlook for AUD/USD
Looking ahead, whether AUD/USD extends its correction from the 0.6766 peak this week will depend on risk sentiment over the coming days. Key catalysts include major US bank earnings from Bank of America, Citigroup, Wells Fargo, Morgan Stanley, and Goldman Sachs, along with US producer price index (PPI) and retail sales data, which could influence Fed expectations and broader risk appetite.
