Australian Dollar remains steady as China’s economy grows in the fourth quarter of 2025
Australian Dollar Gains Momentum After Inflation Data Release
On Monday, the Australian Dollar advanced against the US Dollar following the publication of Australia’s TD-MI Inflation Gauge. The indicator showed a year-over-year increase to 3.5% in December, up from the previous 3.2%. On a monthly basis, inflation jumped by 1.0% in December 2025, marking the fastest growth since December 2023 and a notable acceleration from the 0.3% rise seen in the prior two months.
The AUD/USD exchange rate remained stable after China released key economic figures. Given the strong trade relationship between Australia and China, shifts in China’s economic performance can significantly influence the Australian Dollar.
According to the National Bureau of Statistics (NBS), China’s Gross Domestic Product (GDP) expanded by 1.2% quarter-on-quarter in the fourth quarter of 2025, up from 1.1% in the previous quarter and surpassing the 1.0% market forecast. Annually, GDP grew by 4.5% in Q4, slightly lower than the 4.8% in Q3 but still above the anticipated 4.4%.
Retail sales in China for December increased by 0.9% year-over-year, falling short of both the 1.2% projection and November’s 1.3% growth. Conversely, industrial production rose by 5.2% year-over-year, outperforming the 5.0% estimate and improving from 4.8% in November.
US Dollar Under Pressure Amid Rising Geopolitical Tensions
- The US Dollar Index (DXY), which tracks the dollar’s value against a basket of six major currencies, slipped to around 99.20. US financial markets were closed on Monday in observance of Martin Luther King Jr. Day.
- The dollar faced additional headwinds as risk aversion increased due to escalating uncertainty over the US–Greenland dispute. Over the weekend, President Donald Trump announced plans to impose tariffs on eight European nations opposing his proposal to purchase Greenland.
- Bloomberg reported that Trump intends to implement a 10% tariff on imports from Denmark, Sweden, France, Germany, the Netherlands, Finland, the United Kingdom, and Norway starting February 1, unless the US is allowed to acquire Greenland.
- Recent US labor market data have delayed expectations for further Federal Reserve interest rate reductions until June. Fed officials have indicated they are in no rush to cut rates further until there is more convincing evidence that inflation is moving sustainably toward the 2% goal.
- Morgan Stanley has updated its 2026 forecast, now predicting a rate cut in June followed by another in September, revising its earlier outlook for cuts in January and April.
- The US Department of Labor reported last Thursday that initial jobless claims unexpectedly dropped to 198,000 for the week ending January 10, beating the expected 215,000 and down from the previous week’s revised 207,000. This data suggests layoffs remain limited and the labor market is resilient despite prolonged high borrowing costs.
- Core Consumer Price Index (CPI), which excludes food and energy, increased by 0.2% in December, coming in below expectations. Annual core inflation held steady at 2.6%, matching a four-year low. The figures provide clearer evidence of easing inflation, as previous data had been affected by government shutdowns. Headline CPI rose by 0.3% month-over-month in December 2025, in line with forecasts and mirroring September’s increase. Yearly inflation remains at 2.7% as anticipated.
- Officials from the Reserve Bank of Australia (RBA) noted that inflation has dropped significantly from its 2022 high, though recent numbers indicate renewed upward pressure. Headline CPI slowed to 3.4% year-over-year in November, the lowest since August, but still above the RBA’s 2–3% target range. The trimmed mean CPI edged down to 3.2% from October’s eight-month peak of 3.3%.
- The RBA observed that inflation risks have shifted slightly to the upside, while downside risks, especially from global developments, have lessened. The board anticipates only one more rate cut this year, with underlying inflation expected to stay above 3% in the near term before gradually declining to about 2.6% by 2027.
- As of January 16, the ASX 30-Day Interbank Cash Rate Futures for February 2026 were at 96.35, indicating a 22% chance of a rate increase to 3.85% at the next RBA meeting.
AUD/USD Targets 0.6700 Near Key Moving Average
On Monday, the AUD/USD pair was trading close to 0.6680. Technical analysis of the daily chart shows the pair consolidating near the nine-day Exponential Moving Average (EMA), pointing to a neutral short-term outlook. The 14-day Relative Strength Index (RSI) stands at 52.78, remaining above the midpoint and supporting a potential upward move.
If the price falls below the short-term average, the 50-day EMA at 0.6642 could serve as the first support level. A further decline might lead the pair toward 0.6414, its lowest point since June 2025.
Conversely, a decisive move above the nine-day EMA at 0.6690 would strengthen the bullish case, potentially driving AUD/USD toward 0.6766, the highest level since October 2024.
