Australian Dollar holds losses following PBOC decision

The Australian Dollar remains subdued against the US Dollar (USD) on Tuesday, following modest gains in the previous session. The AUD/USD pair remains subdued after the People’s Bank of China (PBOC), China’s central bank, announced to leave its Loan Prime Rates (LPRs) unchanged on Tuesday. The one-year and five-year LPRs were at 3.00% and 3.50%, respectively. It is essential to note that any changes in the Chinese economy could impact the Australian Dollar, as both countries are close trading partners.

The AUD/USD pair may regain its ground as the US Dollar faces challenges amid escalating uncertainty surrounding the United States (US)–Greenland issue. US President Donald Trump said on Saturday that he would impose tariffs on eight European countries opposing his proposal to acquire Greenland. In response, European Union (EU) ambassadors agreed on Sunday to intensify efforts to deter US President Donald Trump from imposing tariffs on European allies, while also preparing retaliatory measures should the duties move forward.

Australia’s TD-MI Inflation Gauge, released on Monday, rose to 3.5% year-over-year (YoY) in December, up from 3.2% previously. On a monthly basis, inflation surged 1.0% month-over-month (MoM) in December 2025, the fastest pace since December 2023 and a sharp acceleration from 0.3% in the prior two months.

The AUD could find support as emerging upward price pressures strengthen expectations of tighter monetary policy from the Reserve Bank of Australia (RBA). The International Monetary Fund (IMF) has urged the RBA to remain cautious, highlighting that inflation has stayed above the Bank’s 2%–3% target band for a prolonged period, even though headline CPI eased more quickly than anticipated in November.

US Dollar declines amid rising US–Greenland concerns

• The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is extending its losses and trading around 99.00 at the time of writing.
• President Trump stated that a 10% tariff would be levied on goods from EU members Denmark, Sweden, France, Germany, the Netherlands, and Finland, as well as Britain and Norway, effective February 1, until the US is permitted to purchase Greenland, per Bloomberg.
• US labor market data have pushed back expectations for further Federal Reserve (Fed) rate cuts until June. Fed officials have signaled little urgency to ease policy further until there is clearer evidence that inflation is sustainably moving toward the 2% target. Morgan Stanley analysts revised their 2026 outlook, now forecasting one rate cut in June followed by another in September, compared with their previous expectation of cuts in January and April.
• The US Department of Labor (DOL) reported on Thursday that Initial Jobless Claims unexpectedly fell to 198K in the week ended January 10, below market expectations of 215K and down from the prior week’s revised 207K. The data confirmed that layoffs remain limited and that the labor market is holding up despite an extended period of high borrowing costs.
• US Core Consumer Price Index (CPI), excluding food and energy, rose 0.2% in December, below market expectations, while annual core inflation held at 2.6%, matching a four-year low. The data provided a clearer sign of easing inflation after earlier releases were skewed by shutdown effects. Meanwhile, CPI increased by 0.3% month-over-month in December 2025, matching market expectations and repeating the rise seen in September. The annual inflation remains at 2.7% increase as expected.
• Data from the National Bureau of Statistics showed on Monday that China’s Industrial Production rose 5.2% year-over-year YoY in December, accelerating from 4.8% in November, supported by resilient export-driven manufacturing activity. Meanwhile, Retail Sales rose 0.9% YoY, undershooting forecasts of 1.2% and November’s 1.3%.
• China’s Gross Domestic Product (GDP) rose 1.2% quarter-over-quarter in Q4 2025, accelerating from 1.1% in Q3 and exceeding the market consensus of 1.0%. On an annual basis, GDP grew 4.5% in Q4, easing from 4.8% in the previous quarter but coming in above expectations of a 4.4% reading.
• RBA policymakers acknowledged that inflation has eased significantly from its 2022 peak, though recent data suggests renewed upward momentum. Headline CPI slowed to 3.4% YoY in November, the lowest reading since August, but remains above the RBA’s 2–3% target band. Meanwhile, trimmed mean CPI edged down to 3.2% from October’s eight-month high of 3.3%.
• The RBA assessed that inflation risks have modestly tilted to the upside, while downside risks, particularly from global conditions, have diminished. Board members expect only one additional rate cut this year, with underlying inflation projected to remain above 3% in the near term before easing to around 2.6% by 2027.
• The ASX 30-Day Interbank Cash Rate Futures for February 2026 were trading at 96.35 as of January 16, implying a 22% probability of a rate hike to 3.85% at the next RBA Board meeting.

Australian Dollar holds above nine-day EMA at 0.6700

The AUD/USD pair is trading around 0.6710 on Tuesday. Daily chart analysis indicates that the pair is consolidating near the nine-day Exponential Moving Average (EMA), pointing to a neutral short-term bias. Meanwhile, the 14-day Relative Strength Index (RSI), at 56.70, remains above the midpoint, reinforcing underlying upside momentum.

The AUD/USD pair remains above the nine-day EMA of 0.6700, keeping the bullish bias active and supporting the pair to target 0.6766, its highest level since October 2024. A daily close below the short-term average may bring the 50-day EMA at 0.6646 into focus as initial support. Deeper losses could then extend toward 0.6414, the lowest level since June 2025.