AUD Holds Ground Amid Hawkish Rate Expectations—Employment Data Next Test

The Australian dollar is drawing support from the Reserve Bank’s increasingly hawkish tone, even as broader currency markets remain volatile. With hawkish bets firmly priced in, the immediate focus shifts to employment data that could reshape market expectations. Meanwhile, the greenback faces renewed pressure from policy uncertainty across the Atlantic.

Dollar Weakness Extends Amid Policy Headwinds

The US dollar has lost considerable ground in recent trading following escalating policy rhetoric and mounting uncertainty around trade and territorial matters. De-dollarisation concerns resurface whenever aggressive policy moves hit the headlines, though analysts suggest much of the recent dollar weakness owes more to positioning unwinding than fundamental repricing.

The squeeze on recent dollar longs indicates traders are reassessing their exposure. Should we see de-escalation, a relief rally in the greenback becomes likely. Meanwhile, economic strength over the coming weeks could provide additional support to USD. Today’s focus lands on Davos, where high-stakes discussions will unfold at the World Economic Forum. Market participants should watch for any headlines or policy announcements, as these could trigger significant moves across FX markets.

RBA’s Hawkish Positioning Sustains AUD Support

Australia’s central bank struck a decidedly hawkish note at its latest policy meeting, citing persistent inflation surprises. The RBA has flagged the possibility of rate hikes later in 2026, a shift that has reverberated through currency markets. Currently, traders are pricing a 29% probability for a rate increase at the upcoming February meeting, with a total of 38 basis points of tightening expected by year-end.

The hawkish RBA narrative should keep the Australian dollar well-supported—but only if economic data cooperates. Tomorrow’s employment report represents a critical test. While the central bank remains focused on next week’s quarterly inflation update, labour market figures carry significant weight for market pricing. A disappointing employment print could trigger AUD weakness across the board, undoing the support derived from hawkish rate expectations. Conversely, robust job creation would reinforce the hawkish narrative and extend gains in the currency.

Technical Levels Define Risk-Reward Opportunities

On the daily chart, AUDUSD bounced decisively from the support zone near 0.6665, with gains accelerating following recent developments. The 4-hour timeframe reveals the technical picture more clearly: buyers pushed higher from the 0.6665 support, rapidly erasing earlier January declines in the dollar.

For traders seeking better risk-reward setups, the 0.6665 support zone offers a defined entry point to position for a rally toward fresh highs. Conversely, a break lower would open the door for a potential drop back to the 0.6600 handle. The 1-hour chart shows minor support around 0.6725—a level where buyers may step in with tight risk management below the zone. A downside breach would target the broader 0.6665 support once again. The average daily range framework helps traders calibrate position sizing around today’s price action.

What’s Next: Catalysts and Risk Events

Today’s agenda includes Trump’s speech at the World Economic Forum and discussions on key policy matters—developments that could move markets significantly. The Fed’s Cook hearing also takes place today at the US Supreme Court.

Tomorrow brings the Australian employment report and US Jobless Claims data—two labour market snapshots that could shake up current market positioning. The employment report carries particular weight for AUD traders, as a soft result would contradict the hawkish rate expectations currently supporting the currency.

The week concludes Friday with US Flash PMI data, offering another window into economic momentum. Given the level of policy uncertainty and data sensitivity, position sizing and risk management remain essential through this event-rich period.