Australian Dollar Price Forecast: Caution prevails ahead of Fed

The Aussie Dollar is still looking for a fresh catalyst to resume its upward trend, which began in late March and appears to have lost momentum ahead of the 0.7300 hurdle in early May. 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 area below the key 0.7000 contention zone in past days. However, the AUD’s positive outlook remains unchanged, bolstered by still elevated inflation at home and the RBA’s cautious stance.

The Australian Dollar (AUD) adds to the optimism seen at the beginning of the week, lifting AUD/USD back to the upper 0.7000s, although another visit to the key 0.7100 barrier remains elusive for now.

The Australian currency is regaining some traction as investors assess the improving geopolitical outlook. Indeed, the mood has brightened following the signing of a memorandum of understanding (MOU) between the US and Iran, a step that could help end recent hostilities and reopen the Strait of Hormuz in the short-term horizon, easing concerns over global trade and energy flows.

That generalised improvement in the risk-linked universe continues to weigh on the US Dollar (USD), as demand for the safe haven space remains subdued. However, a widespread sense of caution continues to hover over markets ahead of the FOMC event on Wednesday, where the Federal Reserve is widely expected to keep interest rates unchanged. 

Australia's economy remains on solid footing

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 cooled 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 is still broadly correct. Somehow reinforcing that view, the latest Melbourne Institute’s Consumer Inflation Expectations eased to 5.5% in May (from 5.6%).

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 provides stability rather than momentum

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, while Retail Sales unexpectedly contracted by 0.6% in the year to May. In addition, Industrial Production exceeded expectations last month after expanding by 4.5% from a year earlier.

Of note is the strong recovery of the trade balance, with May’s surplus widening to $105.43 billion from around $84.8 billion in the previous month and 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 trend in China seems to have re-emerged after the CPI disappointed expectations and rose by 1.2% in the year to May, matching the previous reading. On a monthly basis, prices dropped by 0.1%, while Producer Prices gained 3.9% over the last twelve months, also holding steady from April’s prints.

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 gathering, 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.

RBA keeps its guard up as Bullock says inflation fight is not over

As broadly awaited by market participants, the RBA left its Official Cash Rate (OCR) unchanged at 4.35% at its event early on Tuesday. 

The Reserve Bank of Australia adopted a hawkish stance at its June meeting, reiterating that inflation remains too high and cautioning that more rate rises may yet be necessary if price pressures persist. Policymakers also noted continuing concerns from increased energy costs and underlined their commitment to preventing inflation from becoming entrenched.

That said, Governor Michele Bullock was a little more measured in tone at her press conference. She left the door open to additional tightening but said the incoming data had generally progressed as anticipated and shown the Board did not need to tighten at this meeting. The economy is not entering a recession, and the employment market is still reasonably tight, she said.

The message in general was one of cautious tolerance. Inflation is still the bank's biggest worry, but officials seem more satisfied with the progress made so far and prepared to let past rate rises have more time to work through the economy. Further tightening is feasible, but the bar for another rate rise appears higher than the phrase alone may lead one to expect.

AUD/USD searches for its next catalyst

Base case

While above its key 200-day SMA around 0.6840, 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 0.7200 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 gains extra momentum, or Chinese data continues to disappoint, spot could recede further and revisit recent lows in the 0.6980 zone.

The recovery appears to be there, although markets are still not fully convinced.

Speculators remain broadly constructive on AUD

According to the latest Commodity Futures Trading Commission (CFTC) data, speculative net longs in the Australian Dollar fell to around 18.2K contracts for the week ending on June 9, extending the recent reduction in bullish exposure. Positioning has notably deteriorated over the past month, with net longs down by nearly 67K contracts over the last four reporting weeks.

That unwinding, however, leaves speculative sentiment relatively high by historical standards. The current net long position still ranks in the 90th percentile of its 5-year range, while the speculative exposure stands at 6%, corresponding to the 89th percentile. This suggests that, although investors have been trimming bullish bets aggressively, positioning remains considerably more constructive than it has typically been over recent years.

Of note here is that the net percentile and speculative exposure percentile are telling the same story. When both are sitting around 90, there is confirmation that exposure remains historically elevated.

What could move the Aussie 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. Next on tap on the Australian calendar will be the Westpac Leading Index, seconded by the speech by the RBA’s Jones. Other than that, the focus of attention is expected to be the upcoming FOMC gathering, where the Fed is largely seen keeping a steady hand.

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 landscape

In the daily chart, AUD/USD trades at 0.7072, holding below the 100-day and 55-day simple moving averages (SMAs) at 0.7085 and 0.7124 respectively, which keeps the near-term bias tilted to the downside despite price still hovering well above the 200-day SMA at 0.6847. The Relative Strength Index near 45 hints at subdued momentum rather than an oversold condition, while a firm Average Directional Index around 29 suggests the prevailing downbeat phase remains technically intact.

On the topside, immediate resistance is located at 0.7079, with the 100-day SMA at 0.7085 reinforcing this nearby cap, ahead of the 55-day SMA at 0.7124; a sustained break above these barriers would be needed to ease bearish pressure and expose the next resistance band around 0.7278 and 0.7283, ahead of 0.7661. On the downside, initial support emerges at the horizontal level of 0.6833, with deeper cushions at 0.6660 and 0.6593, while 0.6414 and 0.6373 mark more distant floors if sellers regain control.

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

A positive backdrop with lingering doubts

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.