Australian Dollar Holds Firm After China’s Interest Rate Decision

The Australian Dollar (AUD) maintained its strength against the US Dollar (USD) on Thursday, following the People's Bank of China’s (PBoC) announcement to keep its Loan Prime Rates (LPRs) steady for November. The central bank in China left the one-year LPR at 3.00% and the five-year LPR at 3.50%, signalling no change in borrowing costs for the time being. Given the close trade relationship between China and Australia, this decision has a direct influence on the AUD’s performance.

Impact of China’s Monetary Policy on AUD

China’s decision to hold interest rates unchanged has provided a supportive backdrop for the Australian Dollar. As China is Australia’s largest trading partner, any shifts in Chinese monetary policy tend to ripple through to the AUD. The stability in China’s lending rates reduces uncertainty and helps maintain investor confidence in the Australian currency.

RBA Signals Caution Amid Inflation Concerns

Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter commented on the economic outlook, warning that “sustained above-trend growth could fuel inflationary pressures.” Hunter emphasised that monthly inflation figures can be volatile and that the central bank will not react hastily to a single month’s data. Instead, the RBA is carefully monitoring labour market conditions to assess supply capacity and is evaluating how monetary policy effects evolve over time.

This cautious stance from the RBA has bolstered expectations that interest rates may remain on hold for an extended period. Minutes from the RBA’s November meeting revealed that if economic data continues to outperform, the bank could maintain its current rates. Strong wage growth in the third quarter, robust employment figures last week, and persistently high inflation have all contributed to the view that the easing cycle is likely over.

Market Expectations and Interest Rate Futures

Market instruments reflect this cautious outlook. The ASX 30-Day Interbank Cash Rate Futures, as of November 18, showed the December 2025 contract trading at 96.41. This implies only an 8% chance of a rate cut from 3.60% to 3.35% at the next RBA Board meeting, signalling confidence in the current monetary policy stance.

US Dollar Strengthens Ahead of Key Employment Data

Meanwhile, the US Dollar Index (DXY), which tracks the USD against six major currencies, has gained ground, trading near 100.20 at the time of writing. This rise is attributed to diminishing expectations of Federal Reserve rate cuts. Investors are closely watching the upcoming release of the US September Nonfarm Payrolls report, which is expected to provide further direction for the USD and global markets.

In summary, the Australian Dollar’s resilience is supported by China’s steady monetary policy and the RBA’s cautious approach amid inflation concerns. At the same time, the US Dollar’s recent gains reflect shifting market sentiment ahead of critical employment data.