Fed Cuts, RBA Stays Tight: USD/AUD Slides 1.3%

Fed Cuts, RBA Stays Tight: USD/AUD Slides 1.3%

Introduction

Over the past week the USD/AUD exchange rate moved decisively lower as divergent central-bank signals reshaped short-term currency flows. A 25 basis-point cut by the U.S. Federal Reserve and a surprisingly cautious Reserve Bank of Australia (RBA) combined to pressure the U.S. dollar and lift the Australian dollar. Traders who monitor policy tone, technical levels and macro data found clear directional cues for USD/AUD trades.

Recent policy developments that moved USD/AUD

Federal Reserve goes dovish

On December 11 the Fed reduced its policy rate by 25 basis points and adopted a noticeably dovish communication stance. Forward guidance and liquidity operations signaled the Fed’s willingness to ease further, and markets quickly priced in the prospect of additional cuts in 2026. A softer Fed reduces the yield advantage of dollar-denominated assets, weighing on the greenback and boosting currency pairs like AUD/USD.

RBA holds and hints at tightening

The RBA kept the cash rate unchanged at 3.60% in early December and pushed back on expectations of imminent cuts. Officials emphasized that tightening remains possible if inflation persists above target. That refusal to move toward easier policy — coupled with Australia’s resilient labor and inflation data — created a clear policy divergence that favoured the Australian dollar against the U.S. dollar.

Price action, technical picture and data points

Where the exchange rate moved

In the week under review USD/AUD traded roughly between 1.5208 and 1.5032, representing about a 0.9% decline in the dollar-versus-AUD metric. Viewed reciprocally, AUD/USD climbed toward the 0.6640 area, a gain of approximately 1.3% on the week. These moves reflect a short, sharp re-pricing driven primarily by central-bank divergence rather than a broad shift in fundamentals.

Key technical levels to watch

On the upside for AUD/USD, immediate resistance sits near 0.6650–0.6680; a sustained break higher would open 0.6700 and then seasonal targets identified by several banks. On the downside, support clusters around 0.6600 and 0.6570, with deeper floors near 0.6540. For USD/AUD traders, those levels translate to resistance in the 1.503–1.500 band and support back near 1.520–1.525.

Trading implications and risk management

Short-term trade ideas

The immediate bias is toward AUD strength while the Fed remains in easing mode and the RBA resists cuts. Momentum traders could look for pullbacks toward the 0.6600 region on AUD/USD as tactical entries, targeting the 0.6650–0.6680 zone with tight stops below 0.6570. Conversely, disciplined contrarians should wait for clear signs of policy re-alignment before fading the move.

Macro risks and caveats

Although the policy divergence is the dominant theme, downside surprises in Chinese demand, abrupt shifts in commodity prices, or stronger-than-expected U.S. data could quickly reverse the AUD’s gains. Structural considerations — such as productivity headwinds and potential capital flow volatility — may cap AUD rallies over the medium term, so position size and stop placement remain essential.

Conclusion

The past week’s USD/AUD trajectory was driven by a clean narrative: the Fed eased, the RBA held firm. That divergence produced about a 1.3% lift in AUD/USD and clear trading opportunities around defined technical bands. Traders who pair macro awareness with strict risk management stand best positioned to navigate further moves, while remaining attentive to incoming Fed and RBA communications that will continue to dictate near-term direction.