Mounting Fed tightening bets drive Australian Dollar to 10-month low

Risk aversion and US Dollar strength push the Australian Dollar to its weakest level since January.
Expectations of additional interest rate increases strengthen as Fed comments turn hawkish and US inflation rises.
Following last week’s rate increase to 4.85%, the RBA indicates that a pause in monetary tightening may be possible.

Safe-haven demand for the US Dollar (USD) keeps AUD/USD under pressure on Thursday, extending its decline to the lowest level since January. Expectations of a hawkish Federal Reserve (Fed) provide an additional boost to the Greenback. The pair is trading near 0.6808 at the time of writing, a loss of 0.60% for the day.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Reports of Nvidia CEO Jensen Huang’s resignation weighed on US technology stocks, supporting a rebound in the US Dollar after a modest intraday decline. Adding to investor caution, US President Donald Trump said on Truth Social that the US does not need a deal with Iran.

A fresh year-to-date peak of 103.19 is reached by the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies.

A December Fed rate increase is fully priced in by traders. A 25-basis-point (bps) hike remains the preferred expectation, although a larger 50 bps rise carries a small probability. With a growing number of Fed officials advocating higher rates to curb inflation, markets anticipate further policy tightening into 2027.

To bring inflation down, monetary policy must become restrictive, Cleveland Fed President Beth Hammack said on Thursday. While she prefers smaller rate increases, she indicated that a larger move could be necessary if the Fed falls behind. Support for further tightening also came earlier this week from Dallas Fed President Lorie Logan and Philadelphia Fed President Anna Paulson.

A monthly core inflation print of around 0.3% could make a half-point December rate increase an option, Fed Governor Christopher Waller said ahead of Tuesday’s US inflation release. The core reading subsequently stood at 0.3%, exceeding the forecast of 0.2%.

The Reserve Bank of Australia (RBA), by contrast, has indicated that a pause may follow last week’s 25 basis points increase in the cash rate to 4.85%, its fifth hike this year. An explicit reference to additional rate increases was removed by the RBA. Governor Michele Bullock said the time had come to evaluate the economy’s response to higher borrowing costs.

At 5.3% in November, Australian consumer inflation expectations were unchanged and remained well above the RBA’s inflation target range of 2%-3%. The Melbourne Institute survey gauges the price increases households anticipate over the next 12 months. For the next indication of inflation trends, traders are looking to Friday’s US Producer Price Index (PPI).

How Is The Australian Dollar Performing Today?

Today’s percentage moves in the Australian Dollar (AUD) relative to the major currencies listed are set out below. The British Pound was the currency against which the Australian Dollar performed best.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.21%	0.29%	0.02%	0.07%	0.57%	0.26%	0.20%
EUR	-0.21%		0.09%	-0.19%	-0.15%	0.36%	0.03%	-0.02%
GBP	-0.29%	-0.09%		-0.23%	-0.22%	0.28%	-0.04%	-0.10%
JPY	-0.02%	0.19%	0.23%		0.04%	0.54%	0.21%	0.16%
CAD	-0.07%	0.15%	0.22%	-0.04%		0.50%	0.18%	0.12%
AUD	-0.57%	-0.36%	-0.28%	-0.54%	-0.50%		-0.31%	-0.35%
NZD	-0.26%	-0.03%	0.04%	-0.21%	-0.18%	0.31%		-0.03%
CHF	-0.20%	0.02%	0.10%	-0.16%	-0.12%	0.35%	0.03%

Percentage movements between major currencies are displayed in the heat map. To read a currency pair, select its base currency in the left-hand column and its quote currency in the top row. Selecting the Australian Dollar on the left and following that row across to the US Dollar, for instance, gives the percentage change for AUD (base)/USD (quote) in the corresponding cell.