FX.co ★ Australian Dollar Eyes Three-Year High

On Tuesday, the Australian dollar was trading around $0.691, approaching its highest point since January 2023, driven by the attractiveness of elevated yields. Yields on Australian government bonds have become increasingly appealing, particularly with three-year bonds—sensitive to policy changes—reaching their highest level since November 2023. This trend reflects investors' confidence in Australia’s exemplary credit rating and the central bank’s optimistic policy stance. Domestic economic indicators have further bolstered the argument for an interest rate increase, as evidenced by an unexpected drop in the unemployment rate to a seven-month low in December. The focus now shifts to key inflation data set for release on Wednesday. Investors are paying close attention to the December monthly Consumer Price Index (CPI) and the Q4 trimmed mean measure, the latter being viewed as the Reserve Bank of Australia's (RBA) preferred indicator of underlying inflationary pressures. Predictions indicate an increase in December’s monthly inflation, following stagnation in November, while the RBA’s Q4 trimmed mean CPI is expected to show a slight decline.