AUD/USD Price Forecast: The 200-day SMA holds the downside, for now
- AUD/USD remained on the back foot and broke below the 0.6500 support.
- The US Dollar generated further traction ahead of the Fed meeting.
- Australian inflation readings grab all the attention on the domestic docket.
The Australian Dollar (AUD) extended Monday’s pessimism, much like its other risk‑sensitive peers, dragging AUD/USD below the 0.6500 support and reaching multi-day troughs amid the persistent rebound in the US Dollar (USD).
Economic data send mixed messages
As market participants prepared for the upcoming key inflation data in Australia, the preliminary PMIs for July provided a refreshing change: S&P Global's manufacturing and services gauges climbed to 51.6 and 53.8, respectively, signalling expanding activity on both fronts. Yet the labour market painted a more sombre picture. June saw a scant 2K jobs added, unemployment tick up to 4.3%, and participation inch higher to 67.1%. Additionally, inflation expectations decreased to 4.7% from 5.0% in the previous month, which is considered a modest win for the RBA.
RBA stands pat… for now
In early July, the Reserve Bank of Australia (RBA) surprised markets by holding its cash rate at 3.85%. Although not unanimous, Governor Michele Bullock framed the decision as one about “timing rather than direction,” hinting that rate cuts remain on the table should inflation cooperate.
The subsequent Minutes stoked that view, with board members growing confident that underlying price pressures are cooling. Money markets currently anticipate an easing of roughly 75 basis points over the next year, making an August cut unlikely but not impossible.
China’s uneven rebound keeps the AUD in limbo
Australia’s largest export market is rebounding unevenly.
That said, Q2 GDP jumped 5.2% YoY, and industrial output hums around 7%, but consumer spending remains subdued, with retail sales stuck below 5% as households park extra cash. The People’s Bank of China (PboC) has opted for stability—keeping both the one‑ and five‑year Loan Prime Rates (LPR) at 3.00% and 3.50%, respectively—rather than fresh stimulus.
Diverging policy paths widen the yield gap
While both the Fed and RBA are in “wait‑and‑see” mode, their outlooks are drifting apart. Sticky US inflation and looming tariff risks keep traders wary that the Fed may need to maintain its cautious narrative for longer—any uptick in US price pressures, or a renewed shift from the RBA, could swiftly widen the yield gap and weigh on the Aussie.
Speculators turn even more cautious
Speculators have ramped up their net short bets on the AUD to about 81.2K contracts—their most bearish stance since April 2024—while total open interest has climbed to a multi‑week high of roughly 161.4K contracts.
Chartwatch: key levels in focus
On the upside, immediate resistance sits at the 2025 peak at 0.6625 (July 24), followed by the November 2024 high of 0.6687 (November 7) and the 0.7000 psychological ceiling.
To the downside, eyes are on the July base at 0.6454 (July 17), ahead of the 200‑day SMA at 0.6394.
Momentum indicators are split: the Relative Strength Index (RSI) has dipped below 47 into bearish territory, but the Average Directional Index (ADX) near 14 suggests the trend lacks juice.
What’s next?
Absent a shock from Beijing or an unexpected development on the trade front, the Aussie looks range-bound. With the RBA in no hurry and China’s rebound uneven, traders will be scouring for the next macro catalyst—whether it’s a U-turn in the Fed, a geopolitical twist, or a change of heart from the RBA—to break the stalemate.
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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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.
