Australian Dollar Price Forecast: Can the Aussie break its 0.6400-0.6600 range?
- AUD/USD reversed Monday’s advance and approached the 0.6500 resistance area.
- The US Dollar dropped as traders assessed further threats to the Fed’s independence.
- The RBA Minutes suggested further rate cuts could be in the pipeline.
The Australian Dollar (AUD) started the week on the front foot, with AUD/USD recovering from Monday’s dip and edging back toward the 0.6500 mark. The rebound comes as the US Dollar (USD) softens again and global risk appetite picks up.
Inflation: Cooling, but slowly
Price pressures in Australia are easing, though only in small steps. Q2 CPI rose 0.7% quarter-on-quarter and 2.1% year-on-year, while June’s monthly CPI indicator slipped to 1.9%. Investors will be watching Wednesday’s July CPI release for fresh signals.
The economy: Showing resilience
Recent data has painted a sturdier picture elsewhere. PMIs for early August showed manufacturing climbing to 52.9 and services to 55.1, while retail sales jumped 1.2% in June. Trade also surprised, with the surplus widening to A$5.365 billion from A$1.604 billion. The labour market continues to be tight, with unemployment dropping to 4.2% in July despite the addition of 24.5K jobs.
RBA: Playing it cautious
The Reserve Bank of Australia (RBA) cut rates by 25 bps earlier this month to 3.60% and trimmed its growth outlook for 2025. Governor Michele Bullock pushed back against a bigger cut, stressing policy remains “data-dependent.” Markets now expect another 25 basis point move by November 5. The minutes indicated that the central bank may accelerate cuts if the labour market achieves equilibrium, but it may maintain a slower pace if conditions remain tight.
China: The swing factor
China remains a key player. According to the latest figures, GDP grew 5.2% YoY in the April-June period, and industrial production expanded by 7%, but retail sales were discouraging once again. Manufacturing PMIs slipped back below 50, trade data showed a narrowing surplus, and inflation remains flat. The PBoC kept its key lending rates unchanged last week, as expected.
Market positioning
Speculators have added to short bets on the Aussie, with net shorts hitting their highest since April 2024, as per the latest CFTC report. In addition, open interest also climbed to a two-month peak, underscoring the bearish mood.
Technical picture
Initial resistance comes in at the 2025 ceiling of 0.6625 (July 24), followed by the November 2024 peak of 0.6687 (November 7), with 0.7000 as the bigger upside target.
On the other hand, immediate support sits at 0.6414 (August 21), ahead of the 200-day SMA at 0.6385 and the June floor at 0.6372 (June 23).
When it comes to momentum, the Relative Strength Index (RSI) has edged above 50, hinting at room for more gains, though the Average Directional Index (ADX) near 16 signals a still pale trend.
AUD/USD daily chart
Short-term outlook
AUD/USD remains trapped in its current 0.6400–0.6600 range. Breaking out will likely need a stronger catalyst, whether that’s some sort of improvement from Chinese data, a Fed pivot, or new signals from the RBA.
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.
