The Australian dollar (AUD) held strong at the start of the week after strong Australian inflation data, while the US dollar weakened as market sentiment grew cautious due to the US-Greenland dispute. This combination kept the AUD/USD pair stable and prevented significant declines.
Strengthening in Australia came from the TD-MI Inflation Gauge, which rose to 3.5% YoY in December, from 3.2% previously. On a monthly basis, inflation jumped 1.0% MoM reportedly the fastest pace since December 2023. This data led the market to believe that price pressures in Australia had not yet fully subsided.
Externally, the AUD was also supported by news from China. China's GDP in Q4 2025 rose 1.2% QoQ, faster than Q3 (1.1%) and above market expectations (1.0%). On an annual basis, China's economy grew 4.5% YoY, although slower than 4.8% in Q3, but still slightly better than expected.
However, Chinese data wasn't all smooth sailing. December retail sales rose only 0.9% year-on-year, below the 1.2% forecast and slowing from 1.3% the previous month signaling consumption hasn't recovered strongly. Conversely, industrial production rose 5.2% year-on-year, beating the 5.0% forecast and up from 4.8%. For the Australian dollar, China is crucial because Australia relies heavily on commodity trade with China.
Meanwhile, the US dollar weakened. The DXY index hovered around 99.20, with US markets also quiet due to the Martin Luther King Jr. Day holiday. Risk-off sentiment strengthened as the Greenland issue loomed, after Trump announced 10% tariffs on eight European countries starting February 1 (as long as the US wasn't "allowed" to buy Greenland). When markets are tense, investors tend to be defensive, and the dollar could be under pressure.
On the policy front, strong US jobs data pushed back expectations of a Fed rate cut, while core inflation began to improve. In Australia, the RBA acknowledged that inflation has fallen significantly from its 2022 peak, but remains above its 2–3% target, with signs of further upward pressure. The interest rate market is still pricing in a small increase, as seen in futures contracts indicating a roughly 22% probability of a hike to 3.85% at the next meeting. (asd) [sma]
Source : Newsmaker.id
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