- The Australian dollar made substantial gains against the euro in late 2025
- Declining prospects of an interest rate cut by the Reserve Bank of Australia (RBA) has made AUD less attractive to yield traders
- The European Central Bank (ECB) is likely to keep rates unchanged after core inflation came in at the targeted 2% in December 2025
The Euro has started to recover some ground against the Aussie Dollar after a tough month where it lost over 1% of its value. As of this writing, the Euro is showing signs of a recovery, with the EUR/AUD forex pair trading around 1.7405, after registering threes successive daily gains. So, what’s behind this rebound, considering the Aussie dollar seemed to have a firm grip?
Making Sense of the Euro’s Rebound
Recent info points to a healthy Eurozone economy and inflation returning to normal. Reuters says core inflation eased in December 2025, and Euro area inflation hit the ECB’s 2% target. This benefits the euro compared to riskier currencies because it reduces pressure on the European Central Bank (ECB) to act.
Further, retail sales and industrial performance surprised to the upside at the end of 2025, marking steady domestic demand. Such data reinforce the idea that the euro may not weaken sharply even if broader growth prospects are modest.
The Australian Dollar was popular in 2025. The Reserve Bank of Australia (RBA) revealed that core inflation stayed up at 3.2%, even though overall inflation fell to 3.4%. Many thought the RBA would need to raise rates in early 2026 because of this.
But Westpac says traders are now less sure about those rate hikes, thanks to recent consumer data and a relaxed approach from RBA officials. Since the ECB is hitting its inflation target, the Euro has found backing.
The market doesn’t expect more rate hikes from the Eurozone now that inflation hit 2.0% in December 2025. If the economy stays stable and inflation stays near the target, the ECB could hold steady, preventing a Euro crash.
The Risks on the Horizon
If the court upholds restrictive trade policies, risk-sensitive currencies like the AUD could take a major hit. On the flip side, the Euro faces internal budgetary risks. As the new German government prepares massive fiscal support plans, an oversupply of Euro-denominated bonds could pressure the currency if the market perceives it as a threat to fiscal stability.
EUR/AUD Prediction
EUR/AUD has the first support around 1.7374 and the sellers will likely stay in control if resistance persists at the 1.7461 pivot. An extended control by the sellers will likely clear the path to test YTD lows of 1.7292. With the Relative Strength Index (RSI) now at 37 and out of oversold territory (below 30), selling pressure appears to have eased, although a definitive rally is still not verified.
Buyers need to get past the 1.7446 level in order for the market to keep going up. Traders should keep an eye out for confirmation if the EUR/AUD pair breaks over the resistance level near the 20-day EMA at 1.7520. A break above that level will indicate a stronger momentum that could test 1.7584.
EUR/AUD daily chart with support and resistance levels on January 12, 2026. Created on TradingView
The Euro is getting a boost because traders are less sure that the Reserve Bank of Australia will raise interest rates soon. This is causing them to buy back Euros they previously sold, which pushes the Euro’s price up.
The biggest risks are outside of Australia. Things like new tariffs from the U.S. or China buying fewer commodities could weaken the AUD. Also, if investors get scared about the global economy, they tend to sell off the AUD, which would make the EUR/AUD exchange rate go up.
Risks include shifts in monetary policy expectations, commodity volatility, and global growth sentiment that could strengthen AUD or weaken the euro.