Australian Dollar Price Forecast: All eyes are on the RBA
- AUD/USD added to the ongoing recovery, revisiting the 0.6580 zone.
- The US Dollar remained weighed down by shutdown fears and Fed rate cut bets.
- The RBA is seen keeping its OCR intact at 3.60% at its meeting on Tuesday.
The Australian Dollar (AUD) kicked off the week on a solid footing. AUD/USD climbed to fresh two-day highs in the 0.6570–0.6580 band, extending the recovery that began on Friday.
Why the bounce? The US Dollar (USD) started the week under pressure, weighed down by fears of a possible US government shutdown. On top of that, traders are betting the Federal Reserve (Fed) will cut its interest rates further, which kept the US Dollar Index (DXY) under pressure.
The economy’s resilience
Australia’s economy has shown more grit than many expected. Early September figures suggest the Manufacturing PMI may slip to 51.3 and Services PMI to 52.0, but both readings remain above the 50 threshold, meaning activity is still expanding.
Other data has been encouraging too. Retail sales jumped 1.2% in June, the trade surplus widened to A$7.3 billion in July, and business investment edged higher in the April-June period. Looking at the broader economic activity, GDP also held steady, rising 0.6% inter-quarter and 1.8% YoY in Q2.
Still, the labour market is flashing some caution signs: Unemployment stayed at 4.2% in August, but the Employment Change slipped by 5.4K jobs.
RBA walking a fine line
Inflation remains a sticking point. July’s Monthly CPI Indicator (Weighted Mean) accelerated to 2.8%, up from 1.9% in June. On a quarterly basis, Q2 CPI increased 0.7% QoQ and 2.1% over the last twelve months.
That backdrop explains why the Reserve Bank of Australia (RBA) isn’t rushing to ease policy: With inflation still above target, policymakers are wary of cutting too quickly and reigniting price pressures.
Earlier in September, the RBA trimmed the Official Cash Rate (OCR) by 25 basis points, bringing it down to 3.60%, and at the same time lowered its 2025 growth forecast. Governor Michele Bullock has made it clear deeper cuts aren’t on the agenda right now. She stressed that policy will remain data-dependent, and the Minutes echoed that: If the labour market weakens further, the pace of cuts could quicken; if the economy holds up, easing will be gradual.
In testimony to the House Economics Committee, Bullock described growth and inflation as being in a “good place,” signalling no rush to change course.
Markets seem aligned with that view. Ahead of Tuesday’s meeting, traders broadly expect rates to stay on hold. Futures pricing implies around 18 basis points of easing by year-end.
China still holds the cards
Australia’s fortunes remain closely tied to China. In Q2, Chinese GDP grew at an annualised 5.2%, but August retail sales underwhelmed at 3.4%. Furthermore, PMIs were mixed: manufacturing slipped into contraction at 49.4, while services just about clung to expansion at 50.3. Deflation worries also persist, with CPI down 0.4% in the year to August.
The People’s Bank of China (PBoC) kept its Loan Prime Rates (LPR) unchanged in September: 3.00% for the one-year and 3.50% for the five-year, exactly as markets expected.
Positioning still negative
Speculators remain sceptical about the Aussie. Commodity Futures Trading Commission (CFTC) data for the week ending (September 23) showed net shorts rising to roughly 101.6K contracts, a two-week high. In addition, open interest also climbed to two-week tops, around 160.8K contracts.
Technical picture
Technically, further weakness should not be ruled out.
The loss of the weekly trough at 0.6520 (September 26) could open the door to a test of the interim 100-day Simple Moving Average (SMA) at 0.6517. A clear break lower would open the way back to the August low at 0.6414 (August 21), with the 200-day SMA nearby at 0.6400. Below that lies the June trough at 0.6372 (June 23).
On the upside, if buyers regain control, the pair could retest the September ceiling at 0.6707 (September 17). A clean move through there would put last year’s high at 0.6942 (September 30) on the radar, just shy of the psychological 0.7000 mark.
Momentum indicators remain mixed: The Relative Strength Index (RSI) has bounced to nearly 81, hinting at some resurgence of the buying pressure, while the Average Directional Index (ADX) deflating to roughly 16 suggests the trend is still relatively weak.
AUD/USD daily chart
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Near-term outlook
For now, AUD/USD remains stuck in a broad 0.6400–0.6700 range. A decisive breakout likely needs a catalyst, perhaps stronger Chinese data, a softer Federal Reserve tone, or a surprise hawkish twist from the RBA.
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.
