The RBA’s not-so-hawkish hike saw bears regain control around 70c on Tuesday, before the AI-fuelled risk-off tone on Wall Street and a stronger US dollar added to the bearish cause. With momentum pointing lower and sentiment in the options and futures markets backing bears, AUD/USD could remain on a ‘fade the rally’ watchlist unless appetite for risk returns alongside a weaker US dollar.
View related analysis:
- RBA Hikes to 4.85%, but Split Vote and Softer Guidance Hit AUD/USD
- Extreme Euro Shorts Meet Renewed US Dollar Strength | COT Report
- Gold Reclaims $4,000, Bulls Eye Reversal with Seasonality Tailwind
- ASX 200 Futures Hold Relatively Firm as Nikkei Plunges After Wall Street Rout
- How to Read the COT Report to Track Forex Market Sentiment
Australia This Week: Economic Data and Events for AUD/USD Traders
US Inflation and Consumer Expectations Could Reinforce Fed Hike Bets
Friday's stronger-than-expected US payrolls report saw 165k jobs added versus 65k expected, while unemployment fell to 4.1%. This sent December Fed hike expectations back towards 80% and gave the US dollar a sizeable boost.
Inflation pressures also appear to be building. Headline CPI has risen to 3.72% y/y, while producer prices have accelerated to 6.35%. And with one-year consumer inflation expectations elevated at 3.9%, the Fed has plenty of reasons to remain concerned about persistent inflation.
That makes Tuesday's US CPI report the standout event for AUD/USD this week, followed by Friday's PPI. Hotter inflation could reinforce hawkish Fed bets and extend the US dollar's rally, while softer figures could encourage some short covering on AUD/USD. Monday's New York Fed consumer inflation expectations could also set the tone.
Fed Speakers Could Stir US Dollar Volatility
A busy week of Fed commentary could add to US dollar volatility, with Bowman, Waller, Logan, Goolsbee and Barkin among those speaking. Bowman, Waller and Logan are voting FOMC members in 2026, while Goolsbee and Barkin are non-voters. Traders will be particularly sensitive to any divergence in views on December's rate decision, especially following Friday's stronger-than-expected payrolls report and ahead of US inflation data.
This content was created by an affiliate of FOREX.com and represents the views and opinions of the author/speakers, not the views and opinions of FOREX.com, StoneX Group Inc., or its subsidiaries. The content has not been independently reviewed by FOREX.com.
Wall Street, the RBA and China Remain in Focus
The RBA's surprisingly close 6–3 vote and removal of language suggesting further hikes took some of the shine off Tuesday's rate increase. Australia's consumer and business sentiment surveys could provide further clues about the domestic economy, while Chinese inflation and trade figures may influence the Aussie through the yuan and commodity markets.
But Wall Street could be the deciding factor for AUD/USD over the near term. Concerns over AI valuations and investment returns have weighed heavily on risk appetite, although index futures are holding support for now. S&P 500 futures remain above July's low, Nasdaq 100 futures have bounced from their 2025 high, while Dow futures remain above October's low.
However, elevated volatility across the VIX and VXN suggests risk aversion remains a concern. If Wall Street can defend these support levels and regain its footing, AUD/USD could find some relief. But a decisive break lower could deepen the Aussie's sell-off, particularly if the US dollar remains firm.
Source: CME, CBOT, TradingView
AUD/USD Technical Analysis: Australian Dollar vs US Dollar
AUD/USD Correlations: US Dollar and Commodities Dominate
Strong correlations are a tell-tale sign that macro drivers are at play.
- US dollar remains a dominant driver: AUD/USD retains a strong inverse correlation with DXY across 60-day (-0.84), 10-day (-0.76) and 5-day (-0.99) windows. Further dollar strength could keep the Aussie under pressure.
- Commodity correlations remain strong: The CRB Index shows consistently strong positive correlations, while copper is particularly influential over 10 and 20 days (+0.92 and +0.89). Commodity weakness could add to AUD/USD's downside risks.
- Wall Street remains relevant, but relationships are shifting: AUD/USD retains strong positive 10- and 20-day correlations with Nasdaq, although the 5-day relationship has flipped sharply negative. This warrants caution when using equities as a directional guide.
- The Chinese yuan is back in focus: CNH/USD correlations have strengthened to +0.71 over 10 days and +0.97 over five days, making yuan movements worth monitoring for confirmation of AUD/USD moves.
- Beware of short-term correlation extremes: Several relationships have flipped direction over five days, including gold, iron ore and equities. These extremes could reflect the recent volatility rather than a lasting change in macro drivers.
Source: LSEG
AUD/USD Bears Regain Control as Futures Shorts Hit Record High
It seems bears were right after all. I had flagged the potential for a bearish sentiment extreme, given the record level of short bets against Australian dollar futures in recent weeks. And while AUD/USD initially bounced from support, momentum has clearly turned lower to prove bears right. Gross shorts pushed to a new record by Tuesday’s close, though bearish momentum on AUD/USD really gained traction on Thursday and Friday, pushing it below 69c and the original neckline of the head-and-shoulders top. With a lower low and lower high forming on the weekly chart, bears seem likely to want to fade rallies.
The AU–US 2-year yield spread remains elevated compared to spot AUD/USD prices. This makes it the odd one out, and a lone wolf for the bullish case. The RBA was not as hawkish as it might have been, but NFP data has rekindled hawkish US dollar bets.
Note that risk reversals have fallen sharply, signalling a surge in put demand relative to calls. With futures and options leaning heavily towards the bearish case, a break below the March low could be on the horizon. Though traders may want to keep a close eye on Wall Street to see whether it can hold above support, as that could be the deciding factor in how deep a pullback AUD/USD sees from here.
Source: LSEG
