The AUD/USD’s climb is starting to look more convincing, and it seems likely that it will soon test the 2026 highs in the 0.6760–0.6780 range again. There are also some short-term events that could push the Australian Dollar (AUD) higher, such as the labour market report and flash Purchasing Managers’ Index (PMI) releases on January 22.
The Aussie is clearly finding its footing. After a solid start to the week, AUD/USD has pushed decisively through the 0.6700 mark, climbing to fresh two-week highs and keeping the bullish narrative alive.
Most of that lift, however, has little to do with Australia itself. Instead, the move reflects ongoing softness in the US Dollar (USD), as markets digest another round of headline risk tied to President Trump’s comments, this time involving renewed threats toward several European Union (EU) countries over Greenland.
If you look at the bigger picture, the setup for the pair still looks good. The 200-week and 200-day Simple Moving Averages (SMAs) are both below the spot prices, which are 0.6620 and 0.6532, respectively. That keeps the medium-term trend going up. It’s important to note that this rebound is mostly about the buck and not about the Australian economy getting better.
Australia’s data pulse: softer, not broken
Recent Australian data haven’t exactly fired up markets, but they haven’t caused any alarm either. Growth is clearly cooling, yet it still fits the soft-landing narrative rather than anything more sinister.
The December PMI readings tell that story well. Manufacturing and Services both eased a touch, but stayed comfortably in expansion territory. Retail Sales continue to hold up reasonably well, and although the trade surplus narrowed to A$2.936 billion in November, it remains firmly in positive territory.
Momentum is easing, but gradually. Gross Domestic Product (GDP) grew 0.4% quarter-on-quarter (QoQ) in Q3, down from 0.7% previously. Annual growth, however, held steady at 2.1%, broadly in line with Reserve Bank of Australia (RBA) projections.
The labour market is showing similar signs of gentle cooling. Employment fell by 21.3K in November, but the Unemployment Rate stayed put at 4.3%, pointing to moderation rather than outright weakness. Markets will be watching closely when the December labour report drops later this week.
Inflation remains the trickiest piece of the puzzle: Progress is being made, but slowly. Headline Consumer Price Index (CPI) inflation eased to 3.4% in November, while the trimmed mean slipped to 3.2%, still uncomfortably above the RBA’s target band. On a more encouraging note, Melbourne Institute consumer inflation expectations edged down to 4.6% from 4.7%.
China: still a tailwind, just a lighter one
China continues to provide some underlying support for the AUD, but it’s nowhere near the growth engine it once was.
The economy expanded at an annualised 4.5% pace in the October–December quarter and 1.2% QoQ. Retail Sales rose at an annualised 0.9% in December. Solid figures, but hardly the kind that used to supercharge the Aussie.
More recent data hint at tentative stabilisation, as both the official Manufacturing PMI and the Caixin index crept back into expansion at 50.1 in December. Services activity also firmed, with the non-manufacturing PMI at 50.2 and Caixin’s Services PMI holding at a healthy 52.0.
Trade was a clear bright spot. The surplus widened to $114.1 billion in December, with exports up nearly 7% and imports rising 5.7%.
Inflation, though, remains a mixed bag after the headline CPI was unchanged at 0.8% in the year to December, while Producer Price Index (PPI) inflation stayed in negative territory at -1.9% YoY, a reminder that deflationary pressures haven’t fully gone away.
For now, the People’s Bank of China (PBoC) is in no rush. Loan Prime Rates (LPR) were left unchanged at 3.00% and 3.50% for the one-year and five-year, respectively, earlier on Tuesday, reinforcing the view that any policy support will be incremental rather than forceful.
The RBA: in no rush to blink
The RBA delivered a hawkish hold at its latest meeting, keeping the cash rate steady at 3.60% and sticking with a firm policy stance.
Governor Michele Bullock pushed back firmly against expectations of imminent rate cuts, making it clear the Board is comfortable staying on hold for longer, and remains willing to tighten further if inflation doesn’t play ball.
The December Minutes added a layer of nuance, showing ongoing debate around whether financial conditions are restrictive enough. That uncertainty keeps rate cuts firmly in the “not guaranteed” category.
Focus now shifts to the Q4 trimmed mean CPI print later this month, which could shape the next phase of the policy discussion.
Even so, markets are currently pricing nearly a 28% chance of a hike at the February meeting, alongside just over 38 basis points of hiking across the year.
Positioning check: less bearish, still cautious
Positioning data suggest the worst of the bearish mood may be fading, though conviction remains limited. Commodity Futures Trading Commission (CFTC) data for the week ending January 13 show speculative net short positions in the AUD trimmed slightly, hovering near 19K contracts, the least bearish reading since September 2024.
That said, open interest has lost momentum, easing to around 229.5K contracts. In other words, fresh money is still sitting on the sidelines, signalling caution rather than a decisive shift toward bullish positioning.
What’s on the radar
Near term: US data and ongoing tariff-related noise should continue to dominate the USD side of the equation. Domestically, the January 22 labour market report and preliminary Manufacturing and Services PMIs are the key local catalysts.
Risks: The AUD remains highly sensitive to global risk sentiment. A sudden risk-off turn, renewed concerns around China, or a sharp rebound in the USD could quickly cap any upside.
Technical landscape
Next on the upside AUD/USD is expected to confront the 2026 ceiling of 0.6766 (January 7), ahead of the 2024 high at 0.6942 (September 30), and the 0.7000 yardstick.
Sellers, on the other hand, need to break below the weekly lows at 0.6659 (December 31) and 0.6592 (December 18) to expose a probable move toward the 0.6600–0.6585 band, where the interim 55-day and 100-day Simple Moving Averages (SMAs) are located. A deeper decline could pave the way for a test of the significant 200-day SMA at 0.6532, followed by the November base at 0.6421 (November 21).
The near-term bullish outlook should remain in place while above the 200-day SMA.
Furthermore, momentum indicators point to extra gains: the Relative Strength Index (RSI) surpasses the 62 mark, while the Average Directional Index (ADX) near 29 signals quite a strong trend.
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Bottom line
AUD/USD remains closely tied to global risk sentiment and China’s economic path. A clear break above 0.6800 would be needed to send a more convincing bullish signal.
For now, a choppy USD, steady, if unspectacular, domestic data, an RBA that isn’t in a hurry to ease, and modest support from China keep the bias tilted toward gradual gains rather than a clean breakout.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
