Australian Dollar's Sideways Movement Amid US Dollar Strength and US-EU Tensions
The Australian Dollar (AUD) is experiencing a period of sideways movement on Wednesday, despite rising tensions between the United States (US) and Greenland. This dynamic is influenced by various economic indicators and global events.
Economic Indicators and Market Sentiment
- Westpac-Melbourne Institute Leading Economic Index: The index for Australia rose 0.1% month-on-month (MoM) in December 2025, following an unchanged reading in the previous month. This indicates a gradual economic recovery extending into early 2026.
- Monetary Policy Expectations: The Reserve Bank of Australia (RBA) is under pressure to tighten monetary policy due to emerging upward price pressures. The International Monetary Fund (IMF) has urged caution, noting that inflation has remained above the Bank's target range of 2% to 3% for an extended period, despite a faster-than-expected easing of headline CPI in November.
- Chinese Economic Policy: The People's Bank of China (PBOC) decided to keep its Loan Prime Rates (LPRs) unchanged on Tuesday, with one-year and five-year LPRs at 3.00% and 3.50%, respectively. Any changes in the Chinese economy could significantly impact the Australian Dollar, given the close trading relationship between the two countries.
US Dollar Weakness and US-Greenland Tensions
- US Dollar Index (DXY): The DXY, which measures the US Dollar's value against six major currencies, is recovering from daily losses and trading around 98.60 at the time of writing. This recovery is partly due to concerns over slower economic growth, fueled by US President Donald Trump's ambitions regarding Greenland and threats of new tariffs on European Union (EU) countries.
- European Parliament's Decision: The European Parliament plans to suspend approval of the US trade deal agreed in July, with the decision set to be announced on Wednesday in Strasbourg, France. This move signals an escalation in US-Europe tensions and could impact market sentiment.
- US Labor Market Data: Data from the National Bureau of Statistics showed that China's Industrial Production rose 5.2% year-over-year (YoY) in December, supported by resilient export-driven manufacturing activity. Meanwhile, Retail Sales rose 0.9% YoY, undershooting forecasts. China's Gross Domestic Product (GDP) rose 1.2% quarter-over-quarter in Q4 2025, accelerating from Q3 and exceeding market expectations.
Australian Dollar's Technical Analysis
- AUD/USD Pair: The AUD/USD pair is trading around 0.6740 on Wednesday, rising above the nine-day Exponential Moving Average (EMA). This suggests a short-term bullish bias, with the pair targeting the 15-month high of 0.6766. Immediate support is at the nine-day EMA of 0.6712.
Market Outlook and Currency Performance
The table below provides the percentage change of the Australian Dollar (AUD) against major currencies, with the AUD being the weakest against the New Zealand Dollar.
| Currency | Percentage Change (AUD) |
| --- | --- |
| USD | -0.00% |
| EUR | 0.00% |
| GBP | 0.03% |
| JPY | 0.03% |
| CAD | -0.03% |
| AUD | -0.01% |
| NZD | 0.09% |
| CHF | -0.06% |
Tariffs and Trade Policy
Tariffs are customs duties levied on specific merchandise imports or product categories, designed to protect local industries by providing a price advantage over imported goods. While tariffs generate government revenue, they are distinct from taxes, as they are prepaid at the port of entry, whereas taxes are paid at the time of purchase. Economists have differing views on tariffs, with some advocating for their use to protect domestic industries and address trade imbalances, while others warn of potential long-term price increases and trade wars.
In the lead-up to the 2024 presidential election, Donald Trump emphasized his intention to use tariffs to support the US economy and American producers. Mexico, China, and Canada accounted for 42% of US imports in 2024, with Mexico as the top exporter at $466.6 billion, according to the US Census Bureau. Trump aims to focus on these nations for tariff imposition and plans to use tariff revenue to lower personal income taxes.
