Australian Dollar Price Forecast: Bulls lack conviction for now

AUD/USD looks to have run into fairly firm resistance around 0.7050, pausing after a strong three-week rally. The pair is taking a breather rather than rolling over, and any pullbacks so far look more like consolidation than a change in trend. The Reserve Bank of Australia’s (RBA) hawkish message should continue to limit the downside, even if near-term gains prove harder to extend.

That said, the Australian Dollar (AUD) is softer on Thursday, with AUD/USD adding to Wednesday’s pullback and slipping back towards the 0.6960 area, or two-day lows.

The move largely reflects a firmer US Dollar, helped by a broader risk-off tone that is keeping higher-beta currencies under pressure.

Australia: slowing, not stalling

Recent Australian data haven’t been especially exciting, but they reinforce a familiar and relatively reassuring narrative. Growth is cooling, but it’s doing so in an orderly way. Momentum has eased, not collapsed, keeping the soft-landing story intact.

January PMI surveys sit comfortably within that framework, as both Manufacturing and Services improved and remained in expansion, printing at 52.3 and 56.3 respectively. Retail sales are still holding up reasonably well, and the trade surplus widened to A$3.373 billion in December.

Growth is moderating only gradually after the GDP rose by 0.4% QoQ in Q3, while annual growth came in at 2.1%, exactly in line with RBA forecasts.

The labour market continues to outperform: Employment surged by 65.2K in December, while the Unemployment Rate unexpectedly fell to 4.1% from 4.3%.

Inflation, however, remains the uncomfortable part of the picture. The December CPI surprised to the upside, with headline inflation rising to 3.8% YoY from 3.4%. The trimmed mean increased to 3.3%, in line with consensus but slightly above the RBA’s 3.2% projection. On a quarterly basis, trimmed mean inflation rose to 3.4% over the year to Q4, the highest since Q3 2024.

China: supportive, but lacking spark

China continues to offer a broadly supportive backdrop for the AUD, though without the kind of momentum that would drive a sustained rally.

The economy grew at an annualised pace of 4.5% in Q4, with quarterly growth at 1.2%. Retail sales rose by 0.9% YoY in December, solid but hardly eye-catching.

More recent data point to renewed softness. Both the NBS Manufacturing PMI and the Non-Manufacturing PMI slipped back into contraction in January, at 49.3 and 49.4 respectively.

By contrast, the Caixin PMIs were a little more upbeat. Manufacturing edged up to 50.3, staying just in expansion, while Services rose to 52.3.

Trade was one of the clearer bright spots. The surplus widened sharply to $114.1 billion in December, helped by a near-7% jump in exports and a solid 5.7% rise in imports.

Inflation remains mixed. Consumer prices were unchanged at 0.8% YoY, while producer prices stayed firmly negative at -1.9%, a reminder that deflationary pressures haven’t fully gone away.

For now, the PBoC is sticking with caution. Loan Prime Rates were left unchanged in January at 3.00% for the one-year and 3.50% for the five-year, reinforcing the view that any policy support will be gradual rather than aggressive.

RBA: hawkish tilt, no rush to unwind

The RBA lifted the cash rate to 3.85% in a clearly hawkish move that broadly matched expectations. Upgrades to growth and inflation forecasts point to firmer momentum in activity and price pressures that are becoming more widespread. Core inflation is now expected to remain above the 2–3% target for most of the forecast horizon, strengthening the case for policy restraint.

The key message is that inflation is increasingly demand-driven. Stronger-than-expected private demand was cited as a reason for tighter policy, even as productivity growth remains weak. Governor Bullock described the move as an “adjustment” rather than the start of a new hiking cycle, but the signal was clear: policymakers are uneasy about the upward drift in inflation.

For markets, that means rates are likely to stay restrictive for longer, limiting the scope for near-term easing. From an FX perspective, this offers modest support to the AUD, particularly against low-yielding currencies, even if the RBA’s focus on full employment caps the odds of a more aggressive tightening phase.

Following the decision, markets are now pricing in close to 40 basis points of tightening by year-end.

Positioning: early signs of a mood shift

Positioning data show that the worst of the negative mood around the AUD may be over. According to Commodity Futures Trading Commission (CFTC) data, non-commercial traders are back in a net long position for the first time since early December 2024. However, net longs are still low, with just over 7.1K contracts as of January 27.

Open interest has risen to over 252K contracts, the most in weeks, which suggests that people are getting back into the market. This still looks more like a careful re-entry than a full-blown conviction trade.

What matters next

Near term: Attention swings back to the US as incoming data, tariff headlines and geopolitical noise are likely to drive the USD. For the AUD, the key swing factors remain domestic labour market and inflation data and what they imply for the RBA’s next move.

Risks: The AUD is still very sensitive to how people feel about risk around the world. If risk appetite changes quickly, there are new worries about China, or the USD gets stronger again, recent gains could quickly go away.

The technical landscape

If the bullish bias comes back, AUD/USD could rise to the 2026 ceiling at 0.7093 (January 29) and then to the 2023 peak at 0.7157 (February 2).

A break below the February low of 0.6908 (February 2) would show the provisional 55-day SMA at 0.6700, and then the 2026 bottom of 0.6663 (January 9). If the market pulls back more, the transitory 100-day SMA at 0.6630 could come into view, followed by the key 200-day SMA at 0.6563 and the November trough at 0.6421 (November 21).

Momentum indicators are getting weaker, but they are still positive: The Relative Strength Index (RSI) has dropped back to 60, and the Average Directional Index (ADX), which is just above 50, still shows that there is a strong underlying trend.

Bottom line

AUD/USD is still closely linked to how people feel about risk around the world and China's growth outlook. A long-term break above 0.7000 would help make a more convincing bullish signal stronger.

For now, a weaker USD, steady but not very exciting domestic data, an RBA that is clearly hawkish, and some support from China keep the balance of risks tilted toward more upside rather than a bigger downturn.