• The AUD/USD pair corrects after reaching a three-year high, amid profit-taking.
• Australian producer price data confirm stable inflation at the end of the year.
• The US Dollar regains some ground, supported by political and budget-related developments in the US.

AUD/USD trades around 0.7000 on Friday at the time of writing, down 0.60% on the day, after retreating from a three-year high reached earlier this week. The pair thus snaps a three-day winning streak, amid a technical correction and a modest recovery in support for the US Dollar (USD).

The Australian Dollar (AUD) remains under pressure following the release of Australia’s Producer Price Index (PPI), which rose 3.5% YoY in the fourth quarter of 2025, unchanged from the previous quarter. These figures point to stable upstream inflation, with no further acceleration, limiting immediate enthusiasm for the Australian currency. Nevertheless, the Australian Dollar retains underlying support after hotter-than-expected consumer inflation data released earlier this week strengthened expectations of near-term monetary tightening.

Markets now price in more than a 70% probability of a 25-basis-point rate hike by the Reserve Bank of Australia (RBA) at its next meeting, from a current cash rate of 3.6%. Rate expectations also point to levels near 3.85% by May and around 4.10% by September, which could eventually limit the extent of the AUD/USD pullback.

On the US side, the US Dollar (USD) manages to recover part of its recent losses. The announcement of Kevin Warsh’s appointment as head of the Federal Reserve (Fed), replacing Jerome Powell, has reassured investors about the central bank’s independence. In addition, reports suggesting that a budget agreement between Democrats and Republicans in Congress remains possible have revived hopes of avoiding another government shutdown, providing additional support to the Greenback.

In the background, the latest US producer price data show inflation remaining firm. The Producer Price Index rose 3% YoY in December, above market expectations, while the core component also accelerated to 3.3% YoY. This combination of factors contributes to a temporary rebalancing in favor of the US Dollar, weighing on AUD/USD in the short term despite still-supportive monetary policy prospects in Australia.