Aussie Dollar Falters: Fed-RBA Policy Divergence Widens on Resilient US Data

The Australian Dollar has come under renewed selling pressure, slipping below the 0.6700 handle against the Greenback as a widening macroeconomic chasm between the US and Australia forces traders to reprice interest rate expectations.

Inflation Outlooks Diverge

Data released on Thursday highlights the contrasting trajectories of the two economies. In Australia, the Melbourne Institute reported a dip in consumer inflation expectations for January to 4.6% (down from 4.7%).

While this indicates a gentle cooling of price pressures, it complicates the Reserve Bank of Australias (RBA) narrative. With domestic CPI still sitting above the target band at 3.4%, the RBA remains in a delicate “wait-and-see” mode, holding rates at 3.6%.

Conversely, the US economy continues to defy slowdown predictions. November retail sales surged 0.6%, beating the 0.4% forecast, while jobless claims fell unexpectedly to 198,000, signaling a labor market that remains tight despite restrictive policy.

This resilience has pushed market expectations for a Federal Reserve pivot further into the second half of the year, with Morgan Stanley now delaying cut forecasts to the June-September window.

Technical Outlook: The 0.6660 Line in the Sand

The AUD/USD pair is currently testing critical structural support.

• Immediate Support: The 0.6660 zone is crucial. A sustained break below this level would confirm a “double top” reversal pattern, potentially opening the door for a slide toward the 50% Fibonacci retracement level at 0.6590.
• Resistance: Upside attempts are capped by the dynamic resistance of the Bollinger Band upper rail near 0.6750.

Analyst View

While the RBA is pricing in a 35-40% chance of a hike in February, the “higher-for-longer” reality in the US is the dominant driver for the pair. Unless the upcoming Australian Q4 CPI data delivers a significant extensive shock, the path of least resistance for the Aussie appears lower, subject to commodity price stability.