AUD Strengthens on Hawkish RBA Bets While USD Faces Greenland Headwinds

The Australian Dollar is gaining ground this week as hawkish rate expectations from the Reserve Bank of Australia continue to underpin the currency, while the US Dollar struggles amid geopolitical tensions surrounding the Greenland situation. With the employment report due tomorrow, the near-term direction of AUDUSD will largely depend on labour market strength and market positioning adjustments.

Dollar Under Pressure from Geopolitical Tensions and Positioning Unwind

The greenback has been on the back foot since the beginning of the week, driven by Trump’s escalating rhetoric over Greenland and broader concerns about US foreign policy direction. Beyond the headline geopolitical friction, traders are also unwinding long dollar positions that had accumulated following the recent bout of hawkish repricing. This positioning unwind appears to be exacerbating the dollar’s decline more than fundamental factors alone would suggest.

While a potential de-escalation of tensions could spark a relief rally in the US Dollar, the immediate focus remains on the Davos meetings where Trump is scheduled to speak at the World Economic Forum and discuss Greenland matters with other leaders. Any fresh headlines or social media updates could trigger sharp market moves, making today’s session particularly volatile for FX traders. The dollar could find a bottom only if we see economic data improve materially in the coming weeks.

Aussie Dollar Supported by Hawkish Rate Expectations Ahead of Jobs Data

The RBA has turned notably hawkish in recent communications, signalling that rate hikes might be needed later this year after a series of inflation reports exceeded expectations. The market is currently pricing in approximately a 29% probability of a rate hike at the February meeting, with roughly 38 basis points of tightening expected by year-end. This hawkish stance is providing solid support for the Australian Dollar.

Tomorrow’s employment report will be crucial for AUD price action, as it could influence the market’s rate expectations despite the RBA’s current focus on upcoming quarterly inflation data. A stronger-than-expected jobs print should reinforce the hawkish narrative and keep the AUD bid, while softer employment numbers could trigger a more significant sell-off if traders begin pricing out rate hikes. The labour market data will essentially serve as a test of whether the hawkish bets remain justified or need recalibration.

Key Technical Levels Shaping AUDUSD’s Near-Term Path

From a technical perspective, AUDUSD bounced sharply from the 0.6665 support level and quickly erased January’s dollar strength gains. On the 4-hour chart, this 0.6665 zone remains the critical support level where buyers should position themselves for further upside, while sellers need a clean break below this level to target the 0.6600 handle.

In the shorter timeframe, the 1-hour chart shows a minor support zone around 0.6725. Risk management considerations suggest that buyers should look to enter near this support with stops placed just below, aiming to ride a rally toward fresh highs. From the sell-side, traders need to confirm a break below 0.6665 to establish confidence in a downside move. The average daily range will act as an additional guide for intraday volatility expectations.

Market-Moving Events This Week: From Davos to Employment Data

Today’s agenda includes Trump’s keynote speech at the World Economic Forum followed by leadership discussions, alongside a Fed official hearing. Tomorrow brings the Australian employment report and US Jobless Claims figures—both critical for gauging labour market momentum and shaping rate expectations. The week concludes on Friday with the US Flash PMIs, which will provide forward-looking signals on economic momentum.

The employment data tomorrow will be particularly decisive for AUD direction given the hawkish positioning in the market. A strong jobs report should support the currency further, while a disappointing print could unwind some of the recent hawkish bets and trigger a sharper pullback in AUDUSD.