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AUD/USD extends its gains for the third successive session, trading around 0.7040 during the Asian hours on Thursday. The pair appreciated after hotter-than-expected Australian inflation data, released on Wednesday, lifted the odds of a Reserve Bank of Australia (RBA) rate hike as early as next week.

Markets now price in over a 70% chance of a 25 basis points (bps) hike by the RBA from the 3.6% cash rate, up from 60% before the release, with rates fully priced at 3.85% by May and around 4.10% by September.

Australia’s CPI rose by 3.8% year-over-year (YoY) in December, following a 3.4% increase prior. The market consensus was for 3.6% growth in the reported period. Australia’s RBA Trimmed Mean inflation increased to 0.2% month-over-month (MoM) and 3.3% year-over-year (YoY). The monthly CPI rose 1.0% in December, up from 0% previously and above the 0.7% forecast.

Australia’s export prices rose 3.2% quarter-on-quarter (QoQ) in Q4 2025, rebounding from a 0.9% fall in Q3 and marking the first increase in three quarters, as well as the strongest gain in a year. Meanwhile, Import prices climbed 0.9%, beating expectations for a 0.2% decline and reversing a 0.4% drop in Q3.

The upside of the AUD/USD pair could be restrained as the US Dollar (USD) strengthens after US Treasury Secretary Scott Bessent reiterated the US commitment to a strong USD policy. The US Federal Reserve (Fed) kept interest rates unchanged at its January meeting on Wednesday, pointing to still-elevated inflation and resilient economic growth.

Fed Chair Jerome Powell noted during the post-meeting press conference that job gains have moderated and the unemployment rate has shown signs of stabilization, adding that the Fed is “well positioned” to assess incoming data on a meeting-by-meeting basis and remains off a preset path for future rate decisions.

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