AUD Remains Resilient on Hawkish RBA Bets, Employment Data in Focus

The Australian Dollar is holding steady this week, supported by expectations of a more aggressive monetary stance from the Reserve Bank of Australia. Following recent inflation surprises that came in hotter than anticipated, the RBA has adopted a more hawkish tone in its latest policy communications. Markets are now pricing in a 29% probability of a rate increase when officials meet in February, with a cumulative 38 basis points of tightening anticipated by the end of the year. This renewed hawkish sentiment from the central bank is providing a floor under the AUD, even as broader US Dollar dynamics remain volatile.

Meanwhile, the greenback is facing headwinds in early-week trading. Trump’s recent escalation regarding Greenland has reignited concerns about US policy stability, triggering a retracement in recent Dollar strength that had been built on slightly hawkish repricing. The narrative of de-dollarisation—driven by uncertainty around aggressive and unpredictable US policies—is resurging among market participants. Currency positioning suggest recent dollar longs are being unwound, though a potential de-escalation in geopolitical tensions could spark a relief rally for the greenback, particularly if economic data strengthens over the coming weeks.

The Hawkish Outlook Supporting AUD Strength

The RBA’s recent hawkish commentary marks a shift from previous guidance, signaling that officials are taking inflation pressures more seriously. This pivot is crucial for AUD traders, as it establishes a divergence with other major central banks. The market is weighing whether the central bank might need to tighten policy as soon as 2026, a scenario that would make the Australian Dollar more attractive to yield-seeking investors.

Tomorrow’s employment report will be a key test of this hawkish narrative. Although the RBA is focusing more attention on the quarterly inflation data due next week, labour market conditions remain influential for market pricing. A surprisingly weak jobs report could undermine the hawkish thesis and pressure AUD lower across the board. Conversely, a strong employment outcome should reinforce expectations for tighter monetary policy, potentially driving fresh gains for the currency.

Technical Backdrop: Key Support Levels

From a technical perspective, AUDUSD bounced decisively from the 0.6665 support zone and has since retraced all of January’s Dollar gains. This recovery reflects the interplay between hawkish RBA sentiment and USD weakness stemming from geopolitical concerns.

Buyers are finding a more favorable risk-to-reward setup around the 0.6665 support level, positioning for potential moves into new highs. A breakdown below this zone would open the door for weakness toward the 0.6600 handle, where sellers would likely accumulate short positions. The 0.6725 level also represents a minor support area where buyers may step in with defined risk below that point if price retreats.

Risk management remains paramount: traders looking for upside should place stops below the established support, while those betting on a reversal need to see a clear break lower to justify increased short positions.

Market Catalysts Shaping the Week Ahead

This week’s agenda is packed with events that could shift sentiment. Trump’s appearance at the World Economic Forum in Davos today will command attention, particularly any remarks about Greenland or US foreign policy. Headlines and social media posts could trigger sharp market moves, so staying alert for unexpected policy commentary is essential.

Today also brings a Fed official’s congressional hearing, adding another layer of potential US Dollar volatility. Tomorrow’s release of the Australian employment report paired with US Jobless Claims figures will likely dominate trading flows, especially given the hawkish expectations surrounding the RBA. Friday concludes the week with US Flash PMI data, rounding out a week rich with directional catalysts.

The interplay between hawkish RBA positioning and USD policy uncertainty will remain the central theme driving AUDUSD trading dynamics in the near term.