AUD/USD Price Forecast: Provisional contention lies around 0.6420
- AUD/USD struggled for direction in the lower end of its range near 0.6430.
- The US Dollar traded in a vacillating mood near its recent multi-week tops.
- Retail Sales in Australia increased beyond estimates in June.
The Aussie Dollar (AUD) failed to gather serious upside traction on Thursday, leaving AUD/USD to linger in the area of recent troughs in the low-0.6400s following the irresolute price action in the US Dollar (USD).
Mixed macro signals
Headline inflation edged up by 0.7 % QoQ in Q2 and 2.1 % YoY, while June’s Monthly CPI Indicator printed at 1.9 %. Core pressures eased a touch, with the RBA’s trimmed mean rising 0.6 % QoQ and 2.7 % YoY.
Flash PMIs, however, painted a brighter picture: manufacturing jumped to 51.6 and services to 53.8, both safely above the 50-threshold. In the same line, Retail Sales expanded at a monthly 1.2% in June.
The jobs market told a less cheery story—only 2K positions were added in June, nudging unemployment to 4.3% as participation ticked up to 67.1%.
RBA keeping its options open
Earlier this month the Reserve Bank of Australia (RBA) surprised traders by freezing the cash rate at 3.85 %. Governor Michele Bullock framed the pause as “timing rather than direction”, signalling she’s ready to move if inflation keeps easing. Futures now price in roughly 75 bp of cuts over the coming year; an August move is a long shot, but hardly off the table.
Speaking in Sydney on Thursday, RBA Deputy Governor Andrew Hauser said Australia’s second-quarter inflation data had been “very welcome” and had landed exactly as the central bank had anticipated, adding that the RBA would stick to its gradual, measured path toward lower interest rates.
China’s patchy rebound
Australia’s heavyweight trading partner is still finding its feet.
On this, Q2 GDP grew 5.2% YoY and industrial output 7%, yet retail sales remain stuck below 5%. Beijing’s policymakers are prioritising stability for now, holding the one- and five-year Loan Prime Rates (LPR) at 3.00% and 3.50%, respectively.
Adding to the sour scenario, both the Manufacturing PMI and the Non-Manufacturing PMI eased to 49.3 and 50.1, respectively, in July, according to NBS.
Widening policy gap
The Federal Reserve (Fed) looks intent on keeping rates higher for longer to tame sticky US inflation and guard against fresh tariff risks. By contrast, the RBA is flirting with cuts. That divergence keeps the yield gap leaning against the Aussie, and any tweak to either narrative could send the currency lurching.
Speculative bears in control
Following the latest CFTC positioning report for the week ending July 22, speculators have doubled down on short positions, pushing net shorts to roughly 81.2K contracts—the most bearish stance since April 2024—while open interest climbed to multi-week highs around 161.4K contracts.
Charts to watch
Resistance kicks in at 0.6625, the 2025 high from July 24, followed by 0.6687, the November 2024 high, and the psychological 0.7000 line.
First support sits at 0.6425, the July floor (July 30), with the 200-day SMA lurking at 0.6392.
The Relative Strength Index (RSI) has slipped below 39, hinting at mounting downside pressure, though an Average Directional Index (ADX) near 17 suggests the trend still lacks conviction.
AUD/USD daily chart
Where next?
Barring a surprise from Beijing, a Fed volte-face, or fresh fireworks from the RBA, the Aussie seems destined to drift in its well-worn range through the summer lull—waiting for the next headline to break the stalemate.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
