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AUD/USD stepped into a second straight day of firm gains on Tuesday, climbing two-thirds of one percent and adding to the previous day’s 0.68% gain as the US Dollar (USD) falls across the board. The Australian Dollar (AUD) is catching a fresh bullish bid as the Reserve Bank of Australia (RBA) faces down future interest rate hikes in 2026, while the Federal Reserve (Fed) is expected to get caught in a long-run rate-cutting cycle, depressing Greenback market flows.

Fed rate cut bets sink Greenback
 

The US Dollar weakened on Tuesday in thin, holiday-shortened trading as expectations for further Fed rate cuts next year continued to weigh on sentiment, even after stronger-than-expected economic data. A surprisingly robust 4.3% annualized rise in third-quarter US Gross Domestic Product (GDP) helped the dollar trim losses against the Euro (EUR), but markets still largely believe the Fed will stay on hold in January before resuming easing later in the year, with futures pricing in two cuts in 2026.

Some analysts cautioned that the headline GDP strength may overstate the economy’s underlying health, noting that growth was driven heavily by healthcare spending and inventory drawdowns rather than broad-based business momentum. Combined with signs of a weakening labor market and a drop in US consumer confidence in December, these factors reinforced the view that the dollar could remain under pressure into early next year despite near-term resilience in growth data.

Wednesday’s Asia market session will be a thin affair, with Australian exchanges shuttered for the midweek holidays.

AUD/USD daily chart
 

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