Australian Dollar Price Forecast: Focus now shifts to 0.7000
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UPGRADE- AUD/USD drops to multi-day lows in the sub-0.7100 barrier on Monday.
- The US Dollar trades with marked gains in a flight-to-safety environment.
- The RBA’s Bullock is expected to speak later in Australia.
AUD/USD is still orbiting that familiar 0.7000–0.7150 range, and for now there is no clean break in sight. The Aussie continues to draw underlying support from sticky domestic inflation and a Reserve Bank of Australia (RBA) that is in no rush to soften its hawkish tone. Structurally, that keeps the broader bullish narrative alive.
But the start of the week brought a reality check.
AUD/USD has given back part of its recent gains, slipping back towards the lower end of the range in the low 0.7000s as sentiment turned sour.
The trigger was not domestic. It was geopolitics. The weekend strikes by the US and Israel on Iran reignited tensions in an already fragile Middle East backdrop. Markets reacted in classic fashion: risk off, US Dollar bid, and oil prices surging.
In that kind of environment, high-beta currencies like the Aussie tend to take a step back. For now, though, this looks more like a sentiment-driven pullback than a fundamental shift in the medium-term story.
Australia: momentum easing, resilience intact
Australia’s economy is easing off the boil, but this still looks like a managed slowdown rather than the start of something more troubling. Growth is moderating, yes, but the engine is still running.
The February preliminary Purchasing Managers' Index (PMI) surveys tell that story quite neatly. Manufacturing came in at 52.0 and Services at 52.2, both comfortably in expansion territory. Not spectacular, but far from contraction.
Retail spending continues to hold up, the trade surplus widened to A$3.373 billion at the end of 2025, and Gross Domestic Product (GDP) expanded 0.4% QoQ in Q3, lifting annual growth to 2.1%. That is broadly in line with what the Reserve Bank of Australia (RBA) had pencilled in.
The labour market also points to cooling rather than cracking: Employment Change rose by 17.8K in January, a touch below expectations, while the Unemployment Rate held steady at 4.1%. Softer momentum, not stress.
Inflation: still the pressure point
If there is a vulnerability, it is inflation.
January data reminded markets that price pressures are not retreating quickly. Headline Consumer Price Index (CPI) held at 3.8% YoY for a second straight month, above the 3.7% consensus. More importantly, the Trimmed Mean CPI, the RBA’s preferred core gauge, edged up to 3.4% YoY from 3.3%.
Disinflation is happening. But it is gradual, not decisive.
Looking ahead, the RBA still expects inflation to peak in Q2 2026, with the Trimmed Mean near 3.7% and headline CPI around 4.2%, before easing back towards the midpoint of the 2 to 3% target band by mid 2028.
Policy is restrictive for a reason. The inflation fight is not over.
February credit data reinforce that message. Home Loans rose 10.6% QoQ in Q4, while Investment Lending increased 7.9%. Financial conditions are tight enough to cool demand, but not tight enough to choke it off.
China: a floor, not a springboard
China continues to act as a stabiliser for the Aussie, but it is not delivering a powerful tailwind.
The economy expanded 4.5% YoY in Q4 and 1.2% QoQ, according to the latest GDP figures. Retail Sales increased 0.9% YoY in December. Respectable, though hardly game-changing.
The January PMI split is revealing. Official Manufacturing and Non-Manufacturing PMIs slipped into contraction at 49.3 and 49.4, respectively. Meanwhile, the Caixin Manufacturing PMI and Caixin Services PMI remained in expansion at 50.3 and 52.3, respectively. Larger state-linked sectors appear softer, while smaller private firms are showing more resilience.
The trade surplus widened to $114.1 billion in December, yet inflation remains subdued. CPI rose just 0.2% YoY, and the Producer Price Index (PPI) fell 1.4% YoY. Disinflation, not reflation, still defines the backdrop.
On the policy front, the People’s Bank of China (PBoC) left the one-year and five-year Loan Prime Rate (LPR) unchanged at 3.00% and 3.50%, respectively. The message remains measured and supportive. Stability over stimulus.
For the Aussie, that means China is no longer a drag. But it is not a meaningful accelerator either.
RBA: firm grip, flexible stance
Earlier this month, the RBA lifted the Official Cash Rate (OCR) to 3.85%, underlining that inflation remains the central priority.
Updated projections suggest price pressures will stay above target for much of the forecast horizon. The Minutes made it clear that without the latest hike, inflation would likely have remained above target for too long. Risks had shifted enough to justify further tightening.
But there is no autopilot. No pre-commitment. Policy remains data dependent.
Markets are currently pricing just over 41 basis points of additional tightening by year-end. Not aggressive, but sufficient to maintain a meaningful yield floor under the AUD.
Positioning: crowded, but still constructive
The latest Commodity Futures Trading Commission (CFTC) data show non-commercial traders increased their net longs in AUD to around 52.6K contracts in the week to February 24. That is a fresh multi-year high and extends the positive bias for a fourth consecutive week.
This is not tentative positioning. It reflects genuine conviction.
Compared with the deeply bearish backdrop that dominated much of the previous cycle, sentiment has shifted materially. The speculative community is no longer testing the recovery story. It is positioned for it.
However, open interest edged lower to roughly 248.7K contracts. That nuance matters. The rise in net longs was not accompanied by a broad expansion in participation. Some of the move likely reflects position adjustment rather than strong new inflows.
In practical terms:
Elevated net longs provide a cushion on dips, especially if domestic inflation stays firm and the RBA keeps a hawkish tilt.
Multi-year highs increase crowding risk if the macro narrative turns, particularly via US Dollar strength or weaker China sentiment.
Momentum is intact, but it is no longer early cycle.
What drives AUD/USD from here
Near term, the US Dollar remains the main driver. Strong US data, renewed tariff rhetoric or geopolitical flare ups can quickly reshape AUD/USD dynamics. The Fed–RBA yield spread still offers relative support to the Aussie given the RBA’s firm stance.
Risks are clear. The AUD is a high beta currency. If global risk appetite deteriorates, if China stumbles, or if the Greenback stages a sustained rebound, the unwind could be sharp.
Technical levels
In the daily chart, AUD/USD trades at 0.7063. The near-term bias is bullish as spot holds well above the rising 55-, 100- and 200-day Simple Moving Averages (SMAs), which cluster between 0.6620 and 0.6860 and frame a firmly ascending medium-term trend. Price trades just above the 38.2% Fibonacci retracement at 0.6870 and the 23.6% retracement at 0.6976 measured from the 0.6421 low to the 0.7147 high, indicating that the latest pullbacks have been shallow within a broader advance. The Relative Strength Index (RSI) has eased back toward the mid-50s from overbought territory, pointing to cooled but still positive momentum, while the Average Directional Index (ADX) above 30 signals a mature but intact trending phase.
Initial support emerges at 0.6976, where the 23.6% retracement aligns just above the horizontal level at 0.6897, creating a key demand band for buyers to defend the uptrend. Below that, 0.6660 and 0.6593 form successive supports closer to the rising SMAs, and a break there would expose the 0.6414–0.6373 zone as a deeper corrective floor. On the upside, immediate resistance is located at the Fibonacci swing high near 0.7147, reinforced by the horizontal barrier at 0.7158, with a daily close above this cluster opening the way toward 0.7283. Further north, 0.7661 stands as a more distant bullish target if the pair extends its advance beyond the current range.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: bullish bias, conditional confidence
Australia’s macro backdrop remains resilient, underpinned by a restrictive RBA, improving positioning and a stabilising China story.
That keeps the broader bias tilted to the upside.
But the Aussie is not a defensive currency. It thrives when global sentiment is constructive and struggles when risk sours. For now, dips are likely to attract buyers while the US Dollar remains contained.
If that changes, so does the narrative.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
- AUD/USD drops to multi-day lows in the sub-0.7100 barrier on Monday.
- The US Dollar trades with marked gains in a flight-to-safety environment.
- The RBA’s Bullock is expected to speak later in Australia.
AUD/USD is still orbiting that familiar 0.7000–0.7150 range, and for now there is no clean break in sight. The Aussie continues to draw underlying support from sticky domestic inflation and a Reserve Bank of Australia (RBA) that is in no rush to soften its hawkish tone. Structurally, that keeps the broader bullish narrative alive.
But the start of the week brought a reality check.
AUD/USD has given back part of its recent gains, slipping back towards the lower end of the range in the low 0.7000s as sentiment turned sour.
The trigger was not domestic. It was geopolitics. The weekend strikes by the US and Israel on Iran reignited tensions in an already fragile Middle East backdrop. Markets reacted in classic fashion: risk off, US Dollar bid, and oil prices surging.
In that kind of environment, high-beta currencies like the Aussie tend to take a step back. For now, though, this looks more like a sentiment-driven pullback than a fundamental shift in the medium-term story.
Australia: momentum easing, resilience intact
Australia’s economy is easing off the boil, but this still looks like a managed slowdown rather than the start of something more troubling. Growth is moderating, yes, but the engine is still running.
The February preliminary Purchasing Managers' Index (PMI) surveys tell that story quite neatly. Manufacturing came in at 52.0 and Services at 52.2, both comfortably in expansion territory. Not spectacular, but far from contraction.
Retail spending continues to hold up, the trade surplus widened to A$3.373 billion at the end of 2025, and Gross Domestic Product (GDP) expanded 0.4% QoQ in Q3, lifting annual growth to 2.1%. That is broadly in line with what the Reserve Bank of Australia (RBA) had pencilled in.
The labour market also points to cooling rather than cracking: Employment Change rose by 17.8K in January, a touch below expectations, while the Unemployment Rate held steady at 4.1%. Softer momentum, not stress.
Inflation: still the pressure point
If there is a vulnerability, it is inflation.
January data reminded markets that price pressures are not retreating quickly. Headline Consumer Price Index (CPI) held at 3.8% YoY for a second straight month, above the 3.7% consensus. More importantly, the Trimmed Mean CPI, the RBA’s preferred core gauge, edged up to 3.4% YoY from 3.3%.
Disinflation is happening. But it is gradual, not decisive.
Looking ahead, the RBA still expects inflation to peak in Q2 2026, with the Trimmed Mean near 3.7% and headline CPI around 4.2%, before easing back towards the midpoint of the 2 to 3% target band by mid 2028.
Policy is restrictive for a reason. The inflation fight is not over.
February credit data reinforce that message. Home Loans rose 10.6% QoQ in Q4, while Investment Lending increased 7.9%. Financial conditions are tight enough to cool demand, but not tight enough to choke it off.
China: a floor, not a springboard
China continues to act as a stabiliser for the Aussie, but it is not delivering a powerful tailwind.
The economy expanded 4.5% YoY in Q4 and 1.2% QoQ, according to the latest GDP figures. Retail Sales increased 0.9% YoY in December. Respectable, though hardly game-changing.
The January PMI split is revealing. Official Manufacturing and Non-Manufacturing PMIs slipped into contraction at 49.3 and 49.4, respectively. Meanwhile, the Caixin Manufacturing PMI and Caixin Services PMI remained in expansion at 50.3 and 52.3, respectively. Larger state-linked sectors appear softer, while smaller private firms are showing more resilience.
The trade surplus widened to $114.1 billion in December, yet inflation remains subdued. CPI rose just 0.2% YoY, and the Producer Price Index (PPI) fell 1.4% YoY. Disinflation, not reflation, still defines the backdrop.
On the policy front, the People’s Bank of China (PBoC) left the one-year and five-year Loan Prime Rate (LPR) unchanged at 3.00% and 3.50%, respectively. The message remains measured and supportive. Stability over stimulus.
For the Aussie, that means China is no longer a drag. But it is not a meaningful accelerator either.
RBA: firm grip, flexible stance
Earlier this month, the RBA lifted the Official Cash Rate (OCR) to 3.85%, underlining that inflation remains the central priority.
Updated projections suggest price pressures will stay above target for much of the forecast horizon. The Minutes made it clear that without the latest hike, inflation would likely have remained above target for too long. Risks had shifted enough to justify further tightening.
But there is no autopilot. No pre-commitment. Policy remains data dependent.
Markets are currently pricing just over 41 basis points of additional tightening by year-end. Not aggressive, but sufficient to maintain a meaningful yield floor under the AUD.
Positioning: crowded, but still constructive
The latest Commodity Futures Trading Commission (CFTC) data show non-commercial traders increased their net longs in AUD to around 52.6K contracts in the week to February 24. That is a fresh multi-year high and extends the positive bias for a fourth consecutive week.
This is not tentative positioning. It reflects genuine conviction.
Compared with the deeply bearish backdrop that dominated much of the previous cycle, sentiment has shifted materially. The speculative community is no longer testing the recovery story. It is positioned for it.
However, open interest edged lower to roughly 248.7K contracts. That nuance matters. The rise in net longs was not accompanied by a broad expansion in participation. Some of the move likely reflects position adjustment rather than strong new inflows.
In practical terms:
Elevated net longs provide a cushion on dips, especially if domestic inflation stays firm and the RBA keeps a hawkish tilt.
Multi-year highs increase crowding risk if the macro narrative turns, particularly via US Dollar strength or weaker China sentiment.
Momentum is intact, but it is no longer early cycle.
What drives AUD/USD from here
Near term, the US Dollar remains the main driver. Strong US data, renewed tariff rhetoric or geopolitical flare ups can quickly reshape AUD/USD dynamics. The Fed–RBA yield spread still offers relative support to the Aussie given the RBA’s firm stance.
Risks are clear. The AUD is a high beta currency. If global risk appetite deteriorates, if China stumbles, or if the Greenback stages a sustained rebound, the unwind could be sharp.
Technical levels
In the daily chart, AUD/USD trades at 0.7063. The near-term bias is bullish as spot holds well above the rising 55-, 100- and 200-day Simple Moving Averages (SMAs), which cluster between 0.6620 and 0.6860 and frame a firmly ascending medium-term trend. Price trades just above the 38.2% Fibonacci retracement at 0.6870 and the 23.6% retracement at 0.6976 measured from the 0.6421 low to the 0.7147 high, indicating that the latest pullbacks have been shallow within a broader advance. The Relative Strength Index (RSI) has eased back toward the mid-50s from overbought territory, pointing to cooled but still positive momentum, while the Average Directional Index (ADX) above 30 signals a mature but intact trending phase.
Initial support emerges at 0.6976, where the 23.6% retracement aligns just above the horizontal level at 0.6897, creating a key demand band for buyers to defend the uptrend. Below that, 0.6660 and 0.6593 form successive supports closer to the rising SMAs, and a break there would expose the 0.6414–0.6373 zone as a deeper corrective floor. On the upside, immediate resistance is located at the Fibonacci swing high near 0.7147, reinforced by the horizontal barrier at 0.7158, with a daily close above this cluster opening the way toward 0.7283. Further north, 0.7661 stands as a more distant bullish target if the pair extends its advance beyond the current range.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: bullish bias, conditional confidence
Australia’s macro backdrop remains resilient, underpinned by a restrictive RBA, improving positioning and a stabilising China story.
That keeps the broader bias tilted to the upside.
But the Aussie is not a defensive currency. It thrives when global sentiment is constructive and struggles when risk sours. For now, dips are likely to attract buyers while the US Dollar remains contained.
If that changes, so does the narrative.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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