The Australian Dollar (AUD) extends its gains against the US Dollar (USD) on Thursday after Australia’s latest employment report significantly outperformed expectations, reinforcing the case for a tighter monetary stance from the Reserve Bank of Australia (RBA).
According to data released by the Australian Bureau of Statistics (ABS), Employment Change surged by 65.2K in December, reversing a revised decline of 28.7K jobs in November and comfortably exceeding market forecasts of 30K. At the same time, the Unemployment Rate fell to 4.1% from 4.3%, defying expectations for a rise to 4.4%.
Sean Crick, Head of Labour Statistics at the ABS, noted that increased workforce participation among individuals aged 15–24 played a key role in boosting overall employment and lowering the unemployment rate.
Despite the strong labor data, the International Monetary Fund (IMF) has advised caution, emphasizing that inflation has remained above the RBA’s 2%–3% target band for an extended period. This comes even as headline CPI moderated faster than expected in November.
US Dollar stabilizes as Trump softens tariff stance
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, remains supported near 98.80 after posting modest gains in the previous session.
The USD found support after Bloomberg reported that US President Donald Trump signaled a retreat from imposing tariffs on European nations opposing his bid to assert control over Greenland. Earlier remarks from Trump included threats of new 10% tariffs on goods from eight European Union (EU) countries, alongside comments suggesting there was “no going back” on his Greenland ambitions.
Trump also stated that the US and NATO had established a preliminary framework for a future agreement related to Greenland, though he offered no specifics on the proposed arrangement.
Meanwhile, resilient US labor market data has pushed expectations for further Federal Reserve (Fed) rate cuts back to June. Fed officials continue to stress the need for clear and sustained progress toward the 2% inflation target before easing policy further. Reflecting this shift, Morgan Stanley now projects two rate cuts in 2026—one in June and another in September—revising down from its earlier forecast of cuts in January and April.
China data and inflation trends remain key for AUD outlook
China’s central bank, the People’s Bank of China (PBOC), announced on Tuesday that it would keep its Loan Prime Rates unchanged, with the one-year and five-year LPRs holding at 3.00% and 3.50%, respectively. Given China’s close trade ties with Australia, developments in the Chinese economy remain a critical driver for the AUD.
China’s Industrial Production expanded by 5.2% year-over-year in December, accelerating from November’s 4.8%, supported by robust export-led manufacturing activity. However, Retail Sales growth slowed to 0.9% YoY, missing expectations of 1.2% and down from 1.3% previously.
Domestically, Australia’s TD-MI Inflation Gauge rose to 3.5% YoY in December from 3.2%, while monthly inflation jumped 1.0%—the fastest pace since December 2023 and a sharp pickup from the 0.3% gains seen in prior months.
RBA officials have acknowledged that inflation has eased substantially from its 2022 peak, though recent figures point to renewed upside risks. Headline CPI slowed to 3.4% YoY in November, its lowest level since August, but remains above the central bank’s target range. Trimmed mean CPI edged slightly lower to 3.2% from October’s 3.3%.
The RBA now sees inflation risks modestly tilted to the upside, while downside risks—particularly from global factors—have diminished. Policymakers anticipate just one additional rate cut this year, with underlying inflation expected to stay above 3% in the near term before easing toward 2.6% by 2027.
AUD/USD challenges 0.6800 resistance near channel top
The AUD/USD pair is trading near 0.6790 on Thursday, hovering just below the key psychological resistance at 0.6800. Technical analysis of the daily chart shows the pair advancing within a well-defined ascending channel, signaling a sustained bullish bias.
The nine-day Exponential Moving Average (EMA) has crossed above the 50-day EMA, with price action holding above both indicators—reinforcing upside momentum. Meanwhile, the 14-day Relative Strength Index (RSI) sits near 69.9, close to overbought territory, suggesting stretched but still supportive momentum.
A sustained break above 0.6800 could open the door toward the upper channel boundary near 0.6810, followed by 0.6942—the highest level since February 2023.
On the downside, initial support is located at the nine-day EMA around 0.6732. A move below this level could weaken bullish momentum and expose the lower boundary of the ascending channel near 0.6680, with further support seen at the 50-day EMA at 0.6656.
