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AUD/USD recovers its recent losses registered in the previous trading session, rising toward 0.6690 during the Asian hours on Friday. The pair gains as the Australian Dollar (AUD) finds support amid growing expectations of interest rate hikes from the Reserve Bank of Australia (RBA). Australia’s Q4 CPI report is awaited due January 28. Analysts note that a stronger-than-expected Q4 core inflation reading could trigger a rate hike at the RBA’s February 3 meeting.

RBA Governor Michele Bullock said earlier that although the board did not explicitly consider a rate hike, it discussed the conditions under which interest rates might need to increase in 2026. The RBA December Meeting Minutes indicated that policymakers stand ready to tighten policy if inflation fails to ease as expected

The headline seasonally adjusted S&P Global Australia Manufacturing Purchasing Managers’ Index (PMI) came in at 51.6 in December 2025, slightly below the flash estimate of 52.2 and unchanged from November. The index held at a three-month high, with output and new orders continuing to expand, albeit at a slower pace.

The AUD/USD pair also receives support as the US Dollar struggles on odds of two additional Federal Reserve rate cuts in 2026, reflecting that monetary policy paths diverge between the US Federal Reserve (Fed) and the Reserve Bank of Australia. Markets are bracing for US President Donald Trump to nominate a new Fed chair to replace Jerome Powell when his term ends in May, a move that could tilt monetary policy toward lower interest rates.

Federal Open Market Committee (FOMC) December Meeting Minutes indicated that most participants judged that it would likely be appropriate to stand on further rate cuts if inflation declined over time. Meanwhile, some Fed officials said it might be best to leave rates unchanged for a while after the committee made three rate reductions in 2025 to support the weakening labor market.

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