Australian Dollar Price Forecast: Bulls seem lost

The Aussie Dollar's recovery appears to have met some resistance in the 0.7050-0.7060 band against the US Dollar so far. Indeed, AUD/USD still shows signs of struggling to surpass 0.7000 in a sustainable fashion, while the constructive outlook appears unchanged above its critical 200-day SMA near 0.6920. Looking at the broader picture, the RBA’s cautious stance and still sticky domestic inflation are seen underpinning the Aussie in case of occasional bouts of weakness.

The Australian Dollar (AUD) trades markedly weaker on Thursday, leading to a correction in AUD/USD to the low 0.7000s, or two-day lows.

The pair’s resurgence of the downside pressure comes on the back of a well-bid US Dollar, all amid reignited tensions in the Middle East, particularly hovering around the Strait of Hormuz.

Australia holds its ground

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 prints from the July Purchasing Managers’ Index (PMI) showed Manufacturing at 52.0 (from 51.5) and Services at 53.6 (from 50.5).

Adding extra shine to the domestic fundamentals, the latest trade balance figures showed an A$1.929 billion surplus in June, reversing May’s A$2.367 billion deficit. In addition, Gross Domestic Product (GDP) data disappointed expectations after the economy expanded by 0.3% QoQ in Q1 2026 (from 0.9%) and 2.5% YoY (from 2.5%), with both prints coming in short of expectations.

Meanwhile, the labour market remains healthy. Indeed, the Unemployment Rate held steady at 4.4% in June, and the Employment Change increased by 76.3K individuals (from the revised 44K gain seen in the previous month).

Regarding inflation, June data came in short of what many were expecting, triggering speculation that the RBA might keep its hand steady for now and therefore giving bears a reason to return to the market and punish the Aussie. So far, the pace of disinflation remains weak, although the direction is still broadly correct. 

Somehow reinforcing that view, the latest Melbourne Institute’s Consumer Inflation Expectations eased to 4.7% in July (from 5.5%).

For the RBA, that means the job is still incomplete, 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.

Looking ahead, investors expect the central bank to maintain its current stance at its August meeting, while they now anticipate just over 13 basis points of tightening by year-end.

China stabilises, but fails to inspire

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

Let’s see some numbers: the economy expanded by 4.3% YoY in the April-June period, while Retail Sales gained 1% in the year to June. In addition, Industrial Production kept its strong pace and expanded by 5.3% over the last twelve months.

Of note is the strong recovery of the trade balance, with June’s surplus widening to $125.62 billion from $105.4 billion in the previous month, and both imports and exports expanding markedly.

However, the latest business activity gauges left investors scratching their heads after the National Bureau of Statistics (NBS) reported the Manufacturing PMI at 49.2 in July (from 50.3) and Services at 49.0 (from 50.2). Despite this, private measures like RatingDog remained in expansionary territory last month, with Manufacturing at 50.9 (from 51.7) and Services at 50.4 (from 54.1).

The disinflationary trend in China seems to have re-emerged after the CPI disappointed expectations and rose by 1.0% in the year to June (from 1.1%). On a monthly basis, prices dropped by 0.1%, while Producer Prices gained 4.1% over the last twelve months, exceeding the 3.9% annual gain recorded in the previous month.

Regarding monetary policy, the People’s Bank of China (PBoC) matched consensus last month, leaving its Loan Prime Rates (LPR) unchanged at 3.00% for the one-year tenor and 3.50% for the five-year tenor.

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

The RBA keeps its foot near the brake

As widely expected, the Reserve Bank of Australia (RBA) left its Official Cash Rate unchanged at 4.35% in June.

While the accompanying statement retained a hawkish tone, policymakers appeared a little more comfortable with the progress made on inflation. The Board repeated that price pressures remain too high, and further tightening could still be required if inflation proves more persistent, while higher energy costs and geopolitical tensions are pointed to as key upside risks.

Governor Michele Bullock struck a more balanced tone in her press conference. Although she refused to rule out another rate increase, she noted that incoming data had broadly evolved as expected, the economy is not heading into recession, and the labour market remains relatively resilient. In other words, there was no urgency to tighten policy again.

The Minutes echoed that message. Policymakers agreed that leaving rates unchanged while maintaining a restrictive policy stance offered the best balance between bringing inflation back to target and preserving the gains in the labour market. The door to another hike remains open, but for now the RBA appears willing to give previous rate increases more time to work through the economy.

AUD/USD: Where does it go from here?

Base case

While above its key 200-day SMA, around 0.6900, the pair’s outlook is expected to remain tilted to further advances. However, for such a scenario to materialise, it needs a strong catalyst to emerge and is 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 gathers serious pace, spot should first leave behind the psychological 0.7000 barrier with solid conviction to face the next hurdle at the 0.7200 yardstick, all before reaching the 2026 ceiling near 0.7280. Up from here comes the minor 0.7300 barrier. Further up, the 2022 peak at 0.7593 is still in place. 

Bear case

In the current volatile context, we should not rule out the loss of further momentum. If sentiment deteriorates, the Greenback gains extra momentum, or Chinese data continue to disappoint, spot could recede further and initially challenge its critical 200-day SMA just above 0.6900. The loss of this zone could lead to a renewed wave of bearish moves in the short term.

Shorts remain crowded, but the selling wave is fading

Speculative sentiment towards the Australian Dollar remained negative in the week ending July 28, with Commodity Futures Trading Commission (CFTC) data showing net short positions widening to nearly 40.0K contracts from 37.7K a week earlier. However, the weekly increase in bearish exposure slowed markedly to around 2.3K contracts, compared with 7.0K the previous week, suggesting that while investors continue to favour downside exposure, the pace of selling is beginning to moderate.

The latest move was accompanied by a modest increase in market participation, with open interest rising to roughly 229.8K contracts from just over 225K contracts. Speculative Exposure also edged lower to -17.4% of open interest from -16.7%, indicating that non-commercial accounts continue to add bearish positions rather than simply unwind existing longs.

The broader positioning trend also points to a gradual loss of momentum. The 4-week change improved to -22.3K contracts from -24.7K previously, extending the recent moderation in cumulative bearish flows. Meanwhile, the Net Position Percentile eased to 67.8, while the Speculative Exposure Percentile edged down to 79.3. Although both measures remain elevated, they suggest bearish positioning is becoming more mature rather than accelerating towards fresh extremes.

Overall, the latest CFTC report indicates that speculative investors remain firmly bearish on the Aussie, but the intensity of that view is no longer increasing at the pace seen earlier in the summer. With weekly and 4-week positioning momentum both moderating, the market appears to be transitioning from an aggressive build-up of short exposure to a more established bearish stance, leaving future positioning increasingly dependent on incoming macroeconomic developments.

What to watch next

In the near term, the US Dollar, global risk sentiment, and geopolitics remain the main focus. Those remain the key drivers of price action. While the Australian docket is empty on Friday, investors are expected to follow the release of trade balance results in China as well as inflation figures expected on Sunday.

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

Technical levels

In the daily chart, AUD/USD trades at 0.7031, keeping a mildly bullish near-term bias as it holds above the 55-day and 200-day simple moving averages (SMAs) at 0.7014 and 0.6920 respectively, while facing initial resistance at the 100-day SMA near 0.7052. The Relative Strength Index (14) around 55 suggests constructive but not overstretched momentum, whereas the Average Directional Index (14) near 13 hints at a relatively weak underlying trend, reinforcing the idea of a grinding advance rather than an impulsive rally.

On the topside, immediate resistance is located at the 100-day SMA at 0.7052, followed by the horizontal barrier at 0.7079; a sustained break above this cluster would expose the higher resistance band around 0.7278/0.7283, ahead of the more distant cap at 0.7661. On the downside, initial support appears at the 55-day SMA at 0.7014, with the 200-day SMA at 0.6920 underpinning the broader constructive structure; below there, deeper supports line up at 0.6833 and then 0.6660, 0.6593, 0.6414 and 0.6373.

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

Constructive overall, but increasingly driven from abroad

The Aussie remains constructive on the bigger picture, but the path higher is getting tougher.

Australia's domestic background continues to compare favourably with that of many advanced economies, and the RBA is in no rush to abandon its mildly hawkish bias.

However, that support is being offset by a resilient US Dollar, lingering geopolitical tensions and a Chinese economy that is stabilising rather than accelerating.

For now, the 200-day SMA remains the key zone. Holding above that level keeps the broader bullish structure intact, but a convincing break above 0.7000 will likely require a sustainable road downwards of US inflation, a more dovish turn from the Fed, or a meaningful improvement in global risk appetite.

Until then, expect the AUD to be more driven by outside forces than domestic fundamentals.