The Australian Dollar (AUD) trades little changed against the US Dollar (USD) on Monday, as a firmer Greenback keeps the Aussie on the defensive. At the time of writing, AUD/USD hovers around 0.7072, easing from three-year highs near 0.7147 touched late last week.
Trading conditions also remain thin at the start of the week, further dampening volatility. With US markets closed for Presidents’ Day and several Asian markets observing the Lunar New Year holiday.
The Greenback is showing tentative signs of stabilisation after recent weakness, as investors reassess the timing of Federal Reserve interest-rate cuts following last week’s labour market and inflation data.
Headline Consumer Price Index (CPI) rose 0.2% month-on-month in January, slowing from 0.3% in December. On an annual basis, inflation eased to 2.4% from 2.7%. At the same time Unemployment rate edged down to 4.3% from 4.4%.
On the labour front, Nonfarm Payrolls increased by 130K in January, rebounding from December’s revised 48K gain and comfortably beating market expectations. At the same time, the Unemployment Rate edged lower to 4.3% from 4.4%.
Taken together, firm labour market conditions have tempered expectations for near-term easing, while moderating inflation keeps the Fed on a gradual rate cut path as price pressure trends closer to the 2% target.
Following the CPI release, traders modestly increased their bets on policy easing later this year, with interest-rate futures pricing in more than 50 basis points (bps) of cuts over the remainder of 2026. According to the CME FedWatch Tool, investors currently expect the first rate cut to come in June.
Attention now shifts to a heavy slate of US economic data due later this week. On Wednesday, investors will scrutinise the Fed’s latest Meeting Minutes for fresh clues on the monetary policy outlook. On Friday, markets will assess the core Personal Consumption Expenditures (PCE) inflation report and the advance reading of fourth-quarter Gross Domestic Product (GDP).
In Australia, traders now await the Reserve Bank of Australia (RBA) Meeting Minutes due on Tuesday for more details on the central bank’s latest decision. The RBA began 2026 with a hawkish move, lifting the cash rate by 25 basis points to 3.85% from 3.60% in response to the ongoing inflation pressure.
Governor Michele Bullock reiterated that the Board would not offer forward guidance and would remain firmly focused on incoming data. Looking ahead, Thursday’s employment report will be key for shaping near-term expectations, with markets increasingly pricing in the risk of another rate hike as early as May.
Australian Dollar FAQs
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.
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.
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.
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.
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.