Australian Dollar Price Forecast: Next stop… YTD tops?
|- AUD/USD climbs markedly to hit three-week tops near the 0.7100 barrier.
- The US Dollar gapped lower, hurt by the severe sell-off in the safe haven space.
- The US and Iran have struck a two-week ceasefire, improving the sentiment globally.
The ongoing recovery in the Aussie Dollar appears to have firmed in the last days, allowing bulls to regain control while opening the door for AUD/USD to potentially challenge the upper end of its yearly range sooner rather than later. In the meantime, persistently elevated inflation in Australia coupled with the RBA’s hawkish stance should continue to bolster the AUD’s constructive outlook for now.
The Australian Dollar (AUD) gathered strong upside traction on Wednesday, prompting AUD/USD to advance for the third straight day and approach the key 0.7100 hurdle.
Indeed, the pair’s move to fresh three-week highs comes on the back of the deep sell-off in the US Dollar (USD) in response to the broad-based improvement in the risk-linked universe following the two-week ceasefire reached by the US and Iran early on Wednesday.
Australia: resilience holding, but momentum softening
Australia’s solid fundamentals continue to underpin the Aussie, although the story is beginning to show some early cracks.
The broader picture has not changed much. The economy is still outperforming most of its peers, inflation remains elevated across measures, and the Reserve Bank of Australia (RBA) continues to lean cautiously hawkish.
That said, signs of cooling are starting to emerge. The final March prints of the Purchasing Managers' Index (PMI) slipped below the 50 threshold in both manufacturing and services, pointing to a gradual loss of momentum in domestic activity. Trade, however, remains a bright spot, with the February surplus reaching A$5.686 billion, levels last seen in mid-2025.
Growth remains solid overall. The Gross Domestic Product (GDP) expanded by 0.8% QoQ in Q4 and by 2.6% over the past year, while the labour market is easing only gradually. The Unemployment Rate edged up to 4.3%, and Employment Change rose by 48.9K.
Inflation, however, is still the key issue. The latest Consumer Price Index (CPI) rose 3.7% YoY, while the Trimmed Mean increased by 3.3% and the Weighted Median by 3.5%. Disinflation is underway, but the process remains slow.
From the RBA’s perspective, the job is not done. Policymakers continue to expect inflation to return to target only by mid-2028, keeping the pressure firmly in place.
China: steadying the backdrop, not driving it
China is no longer acting as a tailwind for the Aussie but rather as a stabilising force.
The Chinese economy expanded by 4.5% in Q4 2025, Retail Sales rose by 2.8% YoY, and trade conditions remain broadly supportive. However, the picture becomes more nuanced beneath the surface.
Official PMI data from the National Bureau of Statistics (NBS) remain in contraction territory, while private surveys such as RatingDog, although still in expansion, showed some cooling in March.
Inflation dynamics reinforce that middle ground. The CPI rose 1.2% YoY, while Producer Prices remained in deflation at -0.9% YoY. This backdrop allows the People’s Bank of China (PBoC) to stay on hold, keeping the Loan Prime Rates (LPR) unchanged at 3.00% and 3.50%.
RBA: hawkish lean intact, timing the key question
At its latest meeting, the RBA delivered a finely balanced decision, with a narrow 5–4 vote in favour of raising the Official Cash Rate (OCR) by 25 basis points to 4.10%, underlining just how divided the board has become.
The main message, however, remains unchanged: capacity constraints are still present, and higher crude oil prices are expected to add to inflation pressures in the near term. Governor Michele Bullock made it clear that excess demand continues to sit at the heart of the inflation problem.
The debate now shifts to timing. Some policymakers seem to be leaning toward a period of reflection, wanting to gauge the effects of recent actions amid these external pressures.
This cautious approach was reflected in the most recent Minutes, which underscored the difficulty of predicting the future course of interest rates. Following two rate increases this year, policymakers conceded that the current geopolitical climate is clouding the economic forecast.
Markets, for their part, continue to lean towards further tightening, with around 56 basis points of additional hikes priced in by year-end.
AUD positioning: conviction building, price not confirming
Non-commercial net long positions in the Australian Dollar have been on the rise for three weeks running, reaching roughly 81.5K contracts, a significant build-up in bullish sentiment.
The widening gulf with price action is the real story. The AUD/USD pair has steadily declined, moving from above 0.7100 to below 0.6900.
This divergence suggests that investors are holding onto a constructive medium-term view, likely linked to domestic fundamentals and China's stabilisation, but without near-term confirmation from price.
At the same time, open interest has picked up again, pointing to fresh positioning being added, reinforcing conviction despite weak price follow-through.
The setup is becoming increasingly asymmetric. The Aussie is turning into a crowded long, raising the risk of a sharper unwind if conditions deteriorate. Positioning is starting to look like a vulnerability rather than support.
AUD/USD scenarios: upside alive, downside still lurking
Base case (with a hint of optimism):
Spot is currently trading within the 0.7000–0.7100 range, buoyed by easing geopolitical tensions. However, the upward movement could begin to stall near 0.7100, depending on whether the Greenback gains traction and how the risk environment evolves.
Bull case (needs follow-through):
If risk appetite continues to improve, alongside weaker US data or declining US yields, the pair could break above 0.7100 with conviction, opening the door to 0.7200 and reinforcing the constructive outlook.
Bear case (still asymmetric risk):
If sentiment turns, the US Dollar strengthens, or China underperforms, the move could reverse quickly. A break below 0.7000 would expose the pair to a deeper retracement towards 0.6900.
The rally is real, but conviction still needs to follow.
What drives AUD/USD from here
Near term: the main drivers remain the US Dollar, risk sentiment, and geopolitical headlines. On the domestic side, housing data will offer additional clues, while in the US, inflation via CPI will likely be the main focus.
Risks: a Chinese economic slowdown, a more aggressive Federal Reserve (Fed), or a shift in the RBA’s stance could swiftly destabilise the Aussie.
Technical corner
In the daily chart, AUD/USD trades at 0.7058, holding a constructive bullish bias as spot remains above the 55-, 100- and 200-day simple moving averages, which fan out below price and hint at an improving medium-term trend. The Relative Strength Index around 57 supports a positive tone without yet signalling overbought conditions, while a softening Average Directional Index near 23 suggests the upmove is steady but not strongly trending.
On the topside, immediate resistance is aligned at the 2026 ceiling at 0.7186; a sustained break there would open the way toward 0.7283 and then 0.7661. On the downside, initial support is seen around the 55-day SMA at 0.7018, followed by the 100-day SMA at 0.6848, the March base at 0.6833 and the 50% Fibonacci retracement at 0.6804, with deeper demand expected at the 61.8% Fibonacci retracement at 0.6713 and the 200-day SMA at 0.6692.
(The technical analysis of this story was written with the help of an AI tool.)
To sum up: supported, but not yet convincing
The AUD still benefits from a relatively solid macro backdrop, and the RBA is not stepping away from its stance.
However, this is not an environment that typically supports a sustained rally.
When risk appetite improves, the AUD tends to perform well. But when volatility picks up, the USD usually regains control.
The broader bias remains constructive, but near-term risks are far from gone.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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