The Australian dollar continued its challenge of the 0.6650 resistance level, which has proven resilient for the second consecutive week despite a favorable fundamental backdrop. The main culprit here is the Federal Reserve, which was set to announce its verdict on the outcomes of its last meeting of the year. In anticipation of this event, traders in dollar pairs were reluctant to open large positions. Nevertheless, the Aussie demonstrated strength, reflecting general interest in the Australian currency.
The Australian dollar continued its challenge of the 0.6650 resistance level, which has proven resilient for the second consecutive week despite a favorable fundamental backdrop. The main culprit here is the Federal Reserve, which was set to announce its verdict on the outcomes of its last meeting of the year. In anticipation of this event, traders in dollar pairs were reluctant to open large positions. Nevertheless, the Aussie demonstrated strength, reflecting general interest in the Australian currency.
To briefly summarize, this week, the Reserve Bank of Australia supported AUD/USD buyers by keeping all monetary policy parameters unchanged at its December meeting while maintaining a hawkish tone. According to RBA Governor Michelle Bullock, the baseline forecast suggests either a prolonged pause or an interest rate hike. In this context, she noted that all forthcoming inflation and employment data "will be important for the Board's meeting in February."
Regarding inflation, the RBA primarily focuses on quarterly data. The CPI growth report for the fourth quarter will be released at the end of January next year. In the third quarter, the overall consumer price index increased to 1.3% quarter-on-quarter, the highest since early 2023, up from 0.7% in the previous quarter. Year-on-year, the overall CPI rose to 3.2%, the highest level since the second quarter of last year. The average CPI (Trimmed Mean CPI), the most accurate indicator of sustainable price trends (as it excludes the most volatile components), also increased by 3.0% in the third quarter, after rising to 2.7%, remaining at the upper limit of the target range.
If the aforementioned inflation indicators for the fourth quarter remain stable (or move into the green zone), the likelihood of an interest rate hike in the first quarter of 2026 will significantly increase.
Regarding employment, the RBA will assess the situation dynamically. Thus, every report is important. For this reason, Thursday's release may provoke strong volatility in the AUD/USD pair, especially if the actual result differs from forecast values.
On December 11, we will learn the data for November. The October data significantly supported the Australian dollar, as the unemployment rate fell to 4.3% (against a projected rise to 4.4%) and employment growth increased by 42,000 (against a forecast of +20,000), the highest level since April of this year. It is noteworthy that the growth indicator was driven by full employment, while the part-time employment component was in negative territory (+55.3/-13.1 thousand).
According to forecasts, the unemployment rate in November is expected to rise to 4.4%, and employment is projected to increase by 20.3 thousand, with the labor force participation rate remaining at October's level of 67.0%.
If the report meets the forecast level, traders are likely to ignore it, as this result will not indicate either a "heated" labor market or, furthermore, a cooling one. However, if the labor market in November repeats the October "trajectory" (i.e., unemployment remains at 4.3%, and employment increases by 30,000-40,000, with a predominance of full-time jobs), the Australian dollar will receive substantial support. In such a case, discussions about the prospects of an interest rate hike next year will arise again.
However, in the context of AUD/USD, strong "Australian Non-Farms" can support the Aussie only if the Federal Reserve does not take too hawkish a stance following its December meeting. If the U.S. central bank signals dovish intentions (i.e., allows for additional rate cuts in the first half of next year), the U.S. dollar will come under pressure. In that case, a strong Australian labor market report will only amplify the effect, allowing the AUD/USD pair to move higher.
From a technical perspective, the pair is located between the middle and upper lines of the Bollinger Bands and above all lines of the Ichimoku indicator, indicating a bullish "Parade of Lines" signal. However, buyers have failed to breach the resistance level of 0.6650, which corresponds to the upper line of the Bollinger Bands on the H4 timeframe. Despite the technical signals indicating a preference for long positions, it is currently sensible to stay out of the market—upcoming events (the FOMC meeting results and the release of Australian labor market data) could significantly redraw the fundamental picture for the AUD/USD pair.
