Australian Dollar Price Forecast: Beware of the 200-day SMA

The Aussie Dollar keeps waiting for a fresh catalyst to resume its march north, which kicked in in late March. Meanwhile, dynamics around the US Dollar and geopolitics seem to have been too much for the Aussie, prompting a correction in AUD/USD to the boundaries of the 0.7000 contention zone. However, the AUD’s positive outlook remains unchanged, propped up by still elevated inflation at home and the RBA’s hawkish approach.

The Australian Dollar (AUD) resumes its decline on Tuesday, dragging AUD/USD to just pips away from the psychological 0.7000 contention level, hitting at the same time fresh two-month lows.

Indeed, the sentiment around the Aussie turns sour as investors keep assessing the volatile geopolitical landscape in the Middle East, while auspicious trade data from China has failed to spark a positive reaction among AUD bulls.

A resilient economy faces growing headwinds

The Australian economy does look healthy and stable altogether and, honestly, in much better shape than many of its G10 peers.

This performance appears underpinned by a solid domestic demand and pretty decent figures when it comes to economic growth. The spectre of sticky inflation seems to justify the cautious and data-dependent stance from the Reserve Bank of Australia (RBA), particularly following the latest meeting, where it raised rates to 4.35%, broadly in line with market expectations.

Supporting the above, the final data from the May Purchasing Managers’ Index (PMI) showed Manufacturing at 50.7 (from 51.3) and Services at 48.7 (from 50.7).

Adding some colour to the domestic fundamentals, the latest trade balance figures showed a A$1.791 billion surplus in April, reversing March’s A$1.024 billion deficit. The latest Gross Domestic Product (GDP) data, meanwhile, kind of disappointed expectations: the economy expanded by 0.3% QoQ in Q1 2026 (from 0.9%) and 2.5% YoY (from 2.5%), both prints missing consensus.

Still on the not-so-bright side, the labour market has been cooling over the last couple of months. Indeed, the Unemployment Rate ticked higher to 4.5% in April (from 4.3%), and the Employment Change dropped by 18.6K individuals (from the revised 23.3K gain seen in the prior month).

Regarding inflation, April data saw the Consumer Price Index (CPI) come in at 4.2% from a year earlier (from 4.6%), the Trimmed Mean ticking higher to 3.4% (from 3.3%), and the Weighted Median holding steady at 3.5% over the last twelve months. The pace of disinflation remains weak, although the direction appears to be just about right. Somehow reinforcing that view, the latest Melbourne Institute’s Consumer Inflation Expectations eased to 5.6% in May (from 5.9%).

For the RBA, that means the job is far from done, as policymakers continue to signal that inflation may only return to target around mid-2028, keeping the focus firmly on patience rather than any imminent pivot.

China is steadying the ship, not accelerating it

China now looks more like a stabilising force than the tailwind it usually is for the Australian economy.

Let’s see some numbers: the economy expanded by 5.0% YoY in Q1, and Retail Sales gained 1.9% since the beginning of the year and a meagre 0.2% in the year to April. In addition, Industrial Production disappointed expectations last month after expanding by 4.1% from a year earlier and 5.6% YTD.

Of note is the strong recovery of the trade balance after May’s surplus widened to $105.43 billion from around $84.8 billion in the previous month, with both imports and exports expanding markedly.

However, business activity seems to be regaining traction after the National Bureau of Statistics (NBS) reported Manufacturing PMI at 50 in May (from 50.3), while Services returned to the expansion territory at 50.1 (from 49.4). At the same time, private gauges such as RatingDog still point to expansion, with Manufacturing coming in at 51.8 and Services improving to 54.4.

The disinflationary pressure in China has been losing steam, as the CPI rose 1.2% YoY in April, while Producer Prices jumped by 2.8% YoY, moving further away from deflation.

And what about the People’s Bank of China (PBoC)? The central bank kept the Loan Prime Rates (LPR) unchanged at 3.00% for the one-year tenor and 3.50% for the five-year tenor at its latest event, matching the broad consensus.

In summary, China is no longer pushing growth higher, but it is not dragging it down aggressively either. It is simply keeping things steady.

'Higher for longer' remains the RBA’s message

The Reserve Bank of Australia (RBA) matched expectations in early May, raising the Official Cash Rate (OCR) by 25 basis points to 4.35%, but the overall message was one of growing uncertainty.

The central bank now expects inflation to stay higher for longer, with the CPI returning to target only around 2027–2028, while growth slows and unemployment gradually rises. A big part of that shift comes from the oil shock linked to the Middle East conflict, which the RBA sees as both a drag on activity and a fresh source of inflation pressure.

Even so, policymakers do not believe demand has weakened enough yet, while businesses are increasingly expected to pass on higher costs.

The Minutes reinforced the hawkish side of the story after policymakers appeared more concerned about persistent inflation than slowing growth, with some warning inflation expectations could become de-anchored if the RBA does not remain firm enough.

Last week, Governor Michele Bullock and Assistant Governor Sarah Hunter largely stuck to the bank's existing narrative, suggesting the Australian economy is evolving broadly as expected.

Bullock said the latest federal budget is unlikely to have a materially different impact on demand than the RBA had already anticipated, while also downplaying the risk of a wage-price spiral.

Hunter noted that first-quarter GDP data were broadly in line with the RBA’s forecasts and reiterated that monetary policy remains somewhat restrictive.

Elsewhere, Bullock argued that the artificial intelligence boom has "supercharged" global activity, highlighting the growing role of technology in supporting economic growth.

These remarks offered little new guidance. The central bank remains comfortable with its current outlook, views policy as restrictive, and sees no major surprises from recent economic data.

In the meantime, markets expect the RBA to keep its OCR unchanged at its June 16 gathering, while pencilling in nearly 24 basis points of additional tightening by year-end.

The Australian Dollar holds its ground

Base case

While above its key 200-day SMA around 0.6830, the pair’s outlook is expected to remain tilted to further advances. However, such a move needs a strong catalyst to emerge, and it feels heavily dependent on the broader backdrop: without a sustained improvement in risk sentiment or continued US Dollar weakness, the probability of extra gains could start to lose momentum.

Bull case

Further conviction is needed. If risk appetite picks up serious pace, spot could extend the uptrend and initially confront the 0.720 hurdle, before reaching the 2026 peak near 0.7280, just ahead of the minor 0.7300 barrier. Further up, the 2022 ceiling at 0.7593 awaits. Speculative positioning seems to be leaning toward this scenario for now.

Bear case

In the current volatile context, we should not rule out the loss of further momentum. If sentiment deteriorates, the Greenback picks up extra pace, or Chinese data keep disappointing, spot could recede further and dispute the key 0.7000 neighbourhood in the relatively short-term horizon.

The rally is there, although markets are still not fully convinced.

Speculative positioning loses some momentum

The latest data from the Commodity Futures Trading Commission (CFTC) showed that speculators cut their bullish bets on the Australian Dollar in the week to June 2. Net long positions fell to around 41.8K contracts, the lowest since early February.

Interestingly, that decline in net longs occurred even as participation in the broader market continued to pick up. Open interest increased to nearly 305.4K contracts, its highest level since March 10, showing investors continue to be actively involved despite some easing of bullish sentiment.

It is worth remembering that positioning in the Aussie underwent a significant shift earlier this year. After spending several years predominantly net short, speculative accounts turned net long in late January and have largely maintained a constructive view ever since. Although the rally in AUD/USD appears to have lost some momentum after stalling near the 0.7280 level, the broader picture remains supportive. The pair is still comfortably above its key 200-day Simple Moving Average (SMA), now near 0.6830, indicating that the longer-term uptrend is still intact.

Most importantly perhaps, positioning does not yet seem stretched. Net longs are around 14% of total open interest, well below levels that are often associated with crowded trades. Meanwhile, the long-to-short ratio remains around 1.66, suggesting speculative investors still prefer the upside, even if enthusiasm has cooled somewhat recently.

The next catalysts on the radar

In the near term, the US Dollar, global risk sentiment, and geopolitics remain the main focus. Those remain the key drivers of price action. Next on tap on the Australian calendar will be housing data with the releases of Private House Approvals and Building Permits, while inflation figures in China are also expected to gather attention.

Key risks include a sharper slowdown in China, a more aggressive Fed, a change in investors' risk sentiment, or any shift in the RBA’s stance. Any of these could quickly destabilise the Australian currency in the near term.

Technical levels

In the daily chart, AUD/USD trades at 0.7027, holding just above immediate price support while capped by the nearby 100-day and 55-day simple moving averages (SMAs). The pair sits over the 200-day SMA at 0.6834, which still hints at an underlying medium-term constructive backdrop, yet the proximity of resistance at the 100-day SMA around 0.7077 and the 55-day SMA near 0.7110 suggests upside attempts remain vulnerable. The Relative Strength Index (14) at about 36 leans toward bearish momentum, and the Average Directional Index (14) near 25 indicates a modest but improving trend structure rather than a strong directional move.

On the downside, initial support is at 0.7005, followed by a stronger demand area between the 200-day SMA at 0.6834 and the nearby horizontal level at 0.6833; a break below this area would expose deeper supports at 0.6660 and 0.6593, with 0.6414 and 0.6373 further down the line. On the topside, first resistance is aligned at the 100-day SMA near 0.7077, followed by the 55-day SMA at 0.7110; a daily close above these hurdles would open the way toward the clustered horizontal barriers around 0.7278–0.7283, with a more distant cap at 0.7661.

(The technical analysis of this story was written with the help of an AI tool.)

Supportive fundamentals, uncertain momentum

The broader backdrop for the Australian Dollar remains constructive, and the RBA’s stance should continue to provide a degree of support on dips.

But the Australian Dollar is still a currency that trades heavily on sentiment. When confidence is strong, the Aussie performs well. When uncertainty creeps in, the Greenback tends to take over.

So while the medium-term story still leans constructive, the near-term outlook feels less certain. The move higher is there, but conviction is not quite there…yet.