AUD/USD trades near the 0.7000 mark on Friday, down about 0.60% on the day, as the pair retreats from a three-year peak posted earlier in the week. The move ends a three-session winning streak and reflects a mix of technical profit-taking and a modest recovery in the US Dollar.
The Australian Dollar has come under mild pressure following the release of Australia’s Producer Price Index. PPI rose 3.5% year-on-year in the fourth quarter of 2025, unchanged from the previous quarter. The data signal that upstream inflation remains stable rather than accelerating, offering little fresh impetus for AUD bulls in the near term. As a result, some investors opted to lock in gains after the recent strong rally.
That said, the broader outlook for the Australian Dollar remains constructive. Earlier this week, hotter-than-expected consumer inflation data significantly boosted expectations that the Reserve Bank of Australia will resume tightening policy. Markets are now pricing in more than a 70% probability of a 25-basis-point rate hike at the RBA’s next meeting, from the current cash rate of 3.6%. Expectations also suggest rates could rise toward 3.85% by May and approach 4.10% by September. These projections should help limit the depth of any sustained downside in AUD/USD.
On the US side, the US Dollar has found some relief after weeks of heavy selling. Investor sentiment improved following the announcement that Kevin Warsh will replace Jerome Powell as Chair of the Federal Reserve, easing concerns about political interference and reinforcing confidence in the Fed’s institutional independence. Additionally, reports that Democrats and Republicans may still reach a budget compromise have revived optimism about avoiding another US government shutdown.
US inflation data have also played a role in supporting the Greenback. December Producer Price Index figures showed headline PPI rising 3.0% year-on-year, above expectations, while core PPI accelerated to 3.3%. These readings reinforce the narrative that inflation pressures remain sticky, reducing urgency for aggressive Fed rate cuts.
Overall, AUD/USD’s pullback appears corrective rather than trend-changing. As long as RBA rate hike expectations remain elevated, dips are likely to attract buyers, even as short-term USD strength caps immediate upside.
Trade Idea:
Buy AUD/USD on dips toward 0.6920, targeting 0.7080, with a stop below 0.6860, betting on sustained RBA tightening expectations.