• AUD/USD advances ahead of Australia’s inflation data release.
• Expectations of monetary tightening in Australia support the local currency.
• Broad-based weakness in the US Dollar reinforces the pair’s gains.

AUD/USD trades around 0.6930 on Monday at the time of writing, up 0.55% on the day, and maintains a positive tone at the start of the week. The pair is supported by a combination of domestic Australian factors and persistent pressure on the US Dollar (USD), amid political and monetary uncertainties in the United States (US).

The Australian Dollar (AUD) is mainly underpinned by anticipation surrounding the release of the Consumer Price Index (CPI) for the fourth quarter and December 2025, scheduled for Wednesday. Quarterly inflation is expected to have risen at an annual pace of 3.6%, compared with 3.2% previously, which would reinforce the view that inflationary pressures remain above the Reserve Bank of Australia’s (RBA) target. Hotter-than-expected CPI figures would strengthen expectations of a near-term interest rate increase. According to Reuters, markets currently assign around a 60% chance to a rate hike at the next RBA policy meeting, due next week.

Recent macroeconomic data in Australia also support this bias. Activity indicators, including Purchasing Managers Index (PMI) surveys, point to solid expansion in both manufacturing and services, while the labor market has shown a marked improvement, with strong job creation and a declining Unemployment Rate. These factors reinforce the perception that the economy is resilient enough to absorb further monetary tightening, even as RBA policymakers acknowledge that inflation has eased significantly from its 2022 peak.

At the same time, weakness in the US Dollar is lending additional support to AUD/USD. The Greenback is under pressure ahead of the expected announcement of the new Federal Reserve (Fed) Chair, an event investors view as potentially negative for the currency if future policy decisions are perceived as more aligned with the US administration’s economic agenda. Market participants are also focused on this week’s Fed policy decision, with consensus expectations pointing to interest rates being left unchanged in the 3.50%-3.75% range.

Against this backdrop, AUD/USD remains highly sensitive to upcoming Australian inflation data and shifts in global monetary policy expectations. A confirmation of firmer inflation pressures in Australia could extend support for the Australian Dollar, while any dovish surprise from the Reserve Bank of Australia or a renewed recovery in the US Dollar could temper the pair’s bullish momentum.