Why the AUD Keeps Sliding Despite Inflation Signals—And What the Charts Tell Us

Market’s in a tricky spot: Australia’s inflation expectations just jumped to 4.7%, signaling the RBA might act sooner, but the Australian Dollar still can’t catch a bid against the greenback. Here’s what’s really happening.

The Paradox: Inflation Hawkishness Isn’t Saving the Aussie

The Reserve Bank of Australia (RBA) must be frustrated. Australia’s Consumer Inflation Expectations climbed to 4.7% in December—up from November’s 4.5%—which normally screams “rate hikes incoming.” Commonwealth Bank of Australia and National Australia Bank are now front-running an RBA tightening cycle that could kick off as early as February, with swaps pricing a 28% probability of a move then and 41% odds in March.

Yet despite this hawkish setup, the Australian Dollar (AUD) has slumped for six straight days against the US Dollar (USD). The AUD/USD pair is now trading below 0.6600, a critical confluence support zone. This disconnect tells you something important: AUD traders aren’t buying the inflation story as much as they’re selling the USD weakness narrative.

Wait—scratch that. They’re actually buying the USD. Here’s the real reason why.

The Fed Isn’t Done Yet—That’s the Problem

While the RBA is teeing up rate hikes, the Federal Reserve is signaling the opposite. Yes, the US jobs report was soft (64K payroll growth in November, unemployment ticked up to 4.6%), but that hasn’t convinced Fed officials to pile on more rate cuts. Atlanta Fed President Raphael Bostic explicitly said he’d prefer to keep rates unchanged, and his reasoning is worth noting: firms are pushing through price increases to defend margins, and “price pressures are not just coming from tariffs.”

The median Fed official projects just one rate cut for 2026—far less than traders expected. The market is pricing an implied 74.4% probability of the Fed holding steady at its January meeting, up from nearly 70% a week ago. That’s sticky policy support for the US Dollar.

The US Dollar Index (DXY), which measures the greenback against six major peers, is holding firm around 98.40, reflecting this hawkish-hold dynamic.

China’s Cooling Down, Which Doesn’t Help the Aussie Either

Throw in weak Chinese economic data, and you’ve got a perfect storm for risk-sensitive currencies like the AUD. China’s November Retail Sales came in at just 1.3% year-over-year, missing the 2.9% forecast. Industrial Production rose 4.8%, below the 5.0% expectation. Fixed Asset Investment fell deeper into negative territory at -2.6% year-to-date, worse than the -2.3% consensus.

Slower Chinese growth = lower commodity demand = pressure on the Australian Dollar. Simple as that.

The Technical Picture Confirms the Weakness

Let’s look at the charts. The AUD/USD pair is trading below the nine-day Exponential Moving Average (EMA) at 0.6619, signaling deteriorating short-term momentum. More critically, the pair has dropped below the ascending channel trend line, which means the bullish bias is fading.

If the weakness continues, AUD/USD could probe the 0.6500 psychological level and potentially test the six-month low of 0.6414 (August 21). On the flip side, a recovery would need to clear that 0.6619 EMA to revive buyers. Above that, resistance sits at the three-month high of 0.6685, followed by 0.6707 (the highest since October 2024). Breaking above 0.6760—the upper boundary of the ascending channel—would signal a full reversal.

AUD Forecast: What’s Priced In?

For traders building an AUD forecast, the setup looks like this: RBA rate hikes are likely coming, but the Fed’s stickiness and China’s slowdown are outweighing that benefit. The Australian Dollar needs either a major Fed rate-cut surprise, Chinese stimulus surprise, or a break above technical resistance to regain traction.

In the near term, watch that 0.6500 support level. A break below opens the door to 0.6414. Above 0.6619, we’re testing the recent highs again. Until one of these directional breaks materialize, AUD traders should expect consolidation with a bearish lean—inflation expectations or not.