The November inflation report has ultimately muddied the picture. If, before the release, it was assumed that the acceleration in inflation in Q3 would continue into Q4, which in turn would require more active action from the Reserve Bank of Australia, the tension has now eased somewhat, and the RBA's possible actions are being reassessed.

Recall that at the end of December, it was expected that the RBA would raise the rate twice in the first half of this year (in February and May), i.e. the rate would reach 4.1% by mid-year. That was a powerful bullish factor for the Australian dollar, and it is unsurprising that AUD/USD made an impressive push higher from 21 November. The November data at least removes the relevance of a February hike, and now we must wait for December data to understand whether prices are rising or have begun to decline.

So far, the RBA expects core inflation to exceed 3% over the next five quarters. Price growth will, among other things, be supported by a strong labour market, which implies sustained consumer spending growth, as well as numerous signs of rapid economic recovery, for example, capacity utilisation above the long-term average.

But since inflation fell in November, the RBA needs time to reassess. Labour market data for December will be released on 22 January, and the consumer inflation report for December on 28 January; until these releases, the Australian dollar will have no clear grounds to resume its advance — unless, of course, US news knocks the dollar down. The December inflation report showed that prices are slowly moving toward the 2% target, and the Federal Reserve has no additional reason to keep rates high — a point that Trump is pressing, increasing White House pressure on the Fed, which ultimately gives dollar bulls no advantage. On 21 January, the US Supreme Court will hear arguments in the case concerning Donald Trump's attempts to remove Fed governor Lisa Cook; if the decision favours Trump, pressure on Powell will undoubtedly intensify, and the dollar could simply collapse, as the prospect of faster rate cuts would become apparent.

The net short position on AUD narrowed to a multi-month low of -1.3 billion; the estimated price remains above the long-term average, but momentum has weakened.

AUD/USD is consolidating just below the 0.6769 high set on 7 January. The pullback followed the November inflation index, which showed a stronger-than-expected slowdown in price growth. At the same time, the correction was shallow, confirming the strength of the bullish impulse. The pair has not managed to close below support at 0.6788, and a move to the technical level 0.6635, where the pair could find the next support, looks unlikely. We expect that after consolidation finishes, the rise will resume, with the first target at 0.6769 and then 0.6945.