AUD/USD Forecast and News

The optimism around the Australian Dollar remains intact. A cautious but clearly hawkish stance from the Reserve Bank of Australia (RBA), along with sticky inflation at home and broadly solid fundamentals, continues to underpin the currency and leaves the door open for further gains in the near term.

Even without a strong directional impulse on Thursday, AUD/USD has climbed to fresh 2026 highs near 0.7150, supported by the RBA’s hawkish narrative and a US Dollar (USD) that still struggles to gain consistent traction.

Australia: cooling, but in control

Recent data out of Australia have not been spectacular, but they reinforce a reassuring message. The economy is easing, not rolling over. Momentum has softened in an orderly way, keeping the soft landing story alive.

January Purchasing Managers’ Index (PMI) surveys remain comfortably in expansion territory, with Manufacturing at 52.3 and Services at 56.3. In addition, Retail Sales are holding up reasonably well, and the trade surplus widened to A$3.373 billion at the end of 2025.

Meanwhile, growth is moderating only gradually after the Gross Domestic Product (GDP) expanded 0.4% QoQ in Q3, while annual growth printed at 2.1%, exactly in line with RBA projections.

The labour market continues to impress: Employment Change surged by 65.2K in December, and the Unemployment Rate dipped to 4.1% from 4.3%, again beating expectations. Focus now shifts to next week’s release of the jobs report for the month of January.

Inflation remains the more delicate part of the story, as the December Consumer Price Index (CPI) surprised to the upside, with headline inflation rising to 3.8% YoY. The Trimmed Mean came in at 3.3%, in line with consensus but slightly above the RBA’s 3.2% projection. On a quarterly basis, trimmed mean inflation printed at 3.4% YoY in Q4. Meanwhile, the Melbourne Institute Inflation Expectations jumped to 5.0% in February, the highest since August 2023.

Housing credit is another area worth watching, however: Home Loans surged by 10.6% QoQ in Q4 2025, the fastest pace since March 2021, while Investment Lending for Homes climbed 7.9%. In simple terms, liquidity is still flowing into property, pointing to loose conditions and strengthening the case for the RBA to remain vigilant rather than pivot prematurely.

China: helpful, but not a turbocharger

China continues to provide a decent underlying cushion for the Aussie. The backdrop is broadly constructive, but it lacks the punch of a synchronised upswing that would normally drive a sustained AUD rally. For now, it feels more like steady background support than a true catalyst.

The economy expanded 4.5% YoY in Q4, with quarterly growth at 1.2%. Retail Sales rose 0.9% YoY in December, solid but not spectacular.

More recent data point to renewed softness: the National Bureau of Statistics (NBS) Manufacturing and Non-Manufacturing PMIs slipped back into contraction in January at 49.3 and 49.4, respectively. In addition, the Caixin surveys were more encouraging after Manufacturing edged up to 50.3 and Services improved to 52.3.

Furthermore, trade was a clearer positive after the surplus widened sharply to $114.1 billion in December, with exports up nearly 7% and imports rising 5.7%.

Inflation signals remain mixed, in contrast. The January consumer prices rose 0.2% YoY, while Producer Prices fell 1.4% YoY, underscoring lingering deflationary pressures.

Earlier in the year, the People’s Bank of China (PBoC) kept Loan Prime Rates (LPR) unchanged at 3.00% for the one year and 3.50% for the five years, reinforcing the idea that policy support will remain gradual rather than forceful.

RBA: restrictive, and comfortable with it

The RBA lifted the Official Cash Rate (OCR) to 3.85% in a move with a clear hawkish tilt. Upgraded growth and inflation forecasts suggest firmer momentum and more widespread price pressures. Core inflation is now expected to remain above the 2 to 3% target band for much of the forecast horizon, strengthening the argument for keeping policy restrictive.

Officials have signalled that inflation is increasingly demand-driven rather than purely external, pointing to stronger private demand even as productivity remains weak.

Governor Bullock framed the move as a recalibration, not the start of an aggressive tightening cycle. Still, the message was clear: the Board is uneasy about inflation drifting higher and is not prepared to take risks.

Deputy Governor Andrew Hauser reinforced that message, noting that inflation remains too high and the economy is operating close to capacity.

For now, markets are pricing in nearly 35 basis points of additional tightening this year.

In the FX universe, that keeps the Aussie reasonably well supported, especially against lower-yielding peers.

Positioning: confidence creeping back

According to the Commodity Futures Trading Commission (CFTC), non-commercial traders lifted their net long positions to around 26.1K contracts in the week to February 3, levels last seen in late November 2024.

Open interest has risen for three consecutive weeks to roughly 254.2K contracts, suggesting fresh capital is entering the market rather than simply recycling existing exposure.

What to watch

Near term: US data, tariff headlines and geopolitical developments will likely drive the USD side of the equation. Domestically, labour market and inflation releases remain pivotal for shaping the RBA outlook. On this, the RBA Minutes on February 17 will provide further clarity on the latest decision ahead of the labour market report on February 19.

Risks: AUD remains sensitive to global risk appetite. A sharp deterioration in sentiment, renewed China concerns or a sustained Greenback rebound could quickly unwind recent gains.