AUD/USD corrects to near 0.6700, outlook remains firm amid hawkish RBA bets
AUD/USD falls off from fresh over-a-year high to near 0.6700 as profit-booking in the AUD kicks in.Australian Monthly CPI grew at an annualized pace of 3.8% in November.Investors await FOMC minutes for fresh cues on the US interest rate outlook.The AUD/USD pair retraces to near 0.6700 during the European trading session on Monday from its over-a-year high of 0.6727 posted earlier in the day. The Aussie pair gives back its intraday gains as the Australian Dollar (AUD) faces profit-booking after rallying for weeks, with the US Dollar (USD) trading broadly calm.
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this month. Australian Dollar was the strongest against the Japanese Yen.
USD EUR GBP JPY CAD AUD NZD CHF USD -1.44% -1.92% 0.09% -2.03% -2.27% -1.23% -1.63% EUR 1.44% -0.49% 1.56% -0.59% -0.85% 0.22% -0.20% GBP 1.92% 0.49% 2.32% -0.11% -0.36% 0.71% 0.30% JPY -0.09% -1.56% -2.32% -2.16% -2.40% -1.36% -1.81% CAD 2.03% 0.59% 0.11% 2.16% -0.31% 0.82% 0.40% AUD 2.27% 0.85% 0.36% 2.40% 0.31% 1.07% 0.65% NZD 1.23% -0.22% -0.71% 1.36% -0.82% -1.07% -0.41% CHF 1.63% 0.20% -0.30% 1.81% -0.40% -0.65% 0.41%The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
The AUD has outperformed in past few weeks amid growing expectations that the Reserve Bank of Australia (RBA) could raise interest rates in 2026. RBA hawkish expectations are backed by rising Australian inflationary pressures. Australian monthly Consumer Price Index (CPI) rises at a faster pace of 3.8% year-on-year (YoY) in October.
As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat around 98.00.
The US Dollar flattens ahead of the release of Federal Open Market Committee (FOMC) minutes on Tuesday. Investors will pay close attention to the FOMC minutes to get fresh cues on the United States (US) interest rate outlook.
In the policy meeting, the Fed reduced interest rates by 25 basis points (bps) to 3.50%-3.75% and signaled that there will be only one in the entire 2026. On the contrary, the CME FedWatch tool shows the odds of the Fed reducing interest rates at least 50 bps in 2026 are 73.3%.
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
How does the health of the Chinese Economy impact the Australian Dollar?China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
How does the price of Iron Ore impact the Australian Dollar?Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
How does the Trade Balance impact the Australian Dollar?The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
