The Australian Dollar kept its gains and momentum against the U.S. Dollar on Monday, hitting a 14-month high at 0.6727. Following the release of the Reserve Bank of Australia’s minutes from its December meeting, this rally began. The message was very clear: if inflation doesn’t decline, the RBA is prepared to raise rates once more because they don’t think the current rates are doing enough to control it.
Inflation is still running hot in Australia. In October 2025, headline inflation bumped up to 3.8%, a jump from 3.6% the month before and still above the RBA’s 2–3% comfort zone. That’s got analysts betting on another rate hike as soon as February 2026, with big banks like Commonwealth Bank of Australia and NAB calling for rates to rise to 3.85%. Meanwhile, consumer inflation expectations are climbing, too—hitting 4.7% in December. That only adds fuel to the RBA’s hawkish fire.
China News and Regional Tensions Grab Attention
On top of that, the Australian Dollar is getting a boost from headlines out of China. Australia’s economic fortunes are tightly linked to Chinese trade, so whenever Beijing signals more investment—like this week’s news about a push for advanced manufacturing and innovation—it gives the AUD extra momentum. But it’s not all smooth sailing. Tensions in the South China Sea have certainly escalated since China began its military drills, dubbed ‘Justice Mission 2025,’ off the coast of Taiwan. Actions like these underline Asia’s shipping and trade routes, and may lead to currency swings globally.
US Dollar Waits for Fed Clarity
Shifting focus to US data, Dollar Index is holding steady near 98.10. Traders are in a holding pattern as they wait for the Federal Reserve’s December meeting minutes to get a sense of what policy will be like through 2026. The Fed lowered rates by 25 basis points just last month, and the market is still pricing in two more cuts next year.
Not quite yet, if the most recent U.S. data are any guide. With GDP growth of 4.3% in the Q3, well ahead of expectations, and the number of unemployed people falling to 214k, it’s a strong labour market. But the Fed is expected to keep its foot on the brake for now because of both weaker inflation and sluggish hiring.
AUD/USD is holding above the nine-day EMA and trading just beyond 0.6720 at present. For now, that keeps the bulls in control. The duo could escalate towards 0.6830 on rising beyond 0.6727, though a downside below 0.6680 may indicate a short-term drop.
