Three-week winning streak comes to an end
AUD/USD finished lower last week at 0.6611 (-0.63%), snapping its three-week winning streak. The pullback coincided with a rebound in the US Dollar Index (DXY), as traders largely looked through last week’s key US data releases.
Mixed signals from US economic data
The cooler US November consumer price index (CPI) report was viewed as unreliable due to measurement issues stemming from the prolonged government shutdown. Meanwhile, the November non-farm payrolls (NFP) report offered mixed signals.
On the positive side, private payrolls proved relatively resilient, rising by 69,000 in November. Offsetting this gain, the unemployment rate ticked up to 4.6% – the highest level since September 2021.
On balance, last week’s US data reinforced expectations for two 25 basis point (bp) Federal Reserve (Fed) rate cuts in 2026, without advancing the case for a more aggressive Fed easing cycle next year.
Risk aversion also played a role in Australian dollar’s (AUD) decline, as US equities spent much of the week under pressure amid concerns over elevated valuations and high debt levels in the artificial intelligence (AI) sector. Finally, last week’s decline in AUD/USD reflected profit taking following its sharp 4.10% rally from 21 November low of 0.6419 to 10 December high of 0.6685.
Key events ahead
Looking ahead, Tuesday’s Reserve Bank of Australia (RBA) December meeting minutes and Wednesday’s third-quarter (Q3) gross domestic product (GDP) print will be pivotal, alongside month- and quarter-end rebalancing flows, in determining whether AUD/USD can retest recent highs.
RBA meeting minutes
Date: Tuesday, 23 December at 11.30am AEDT
At its December Board meeting, RBA held the cash rate unchanged at 3.60%, as widely anticipated, marking the third consecutive hold.
The decision came with a hawkish tone in the accompanying statement. Key observations included inflation appearing more broad-based, strengthening private sector growth, a recovering housing market, a still-tight labour market, capacity utilisation remaining above long-run averages, elevated unit labour costs, and the potential for further capacity pressures if private demand continues to accelerate.
RBA Governor Michele Bullock’s subsequent press conference reinforced this hawkishness, noting that a rate cut was not considered, while the Board did discuss scenarios that could warrant a hike. She emphasised RBA’s tightening bias, stating that ‘if it looks like inflation is not coming back to the band then the Board will have to take action, and it will.’
The upcoming minutes will be closely scrutinised for deeper insights into potential triggers and timing around a first rate hike or a shift back toward a neutral policy stance.
Australian interest rate market starts the week pricing in 9 bp of RBA rate hikes for February. There are 25 bp of rate hikes priced for July and a cumulative 41 bp of rate hikes priced between now and the end of 2026.