Australian Dollar Price Forecast: China to the rescue

The Australian Dollar (AUD) has added to Friday’s bounce, motivating AUD/USD to once again approach the key 0.7000 threshold in quite an auspicious start to the new trading week.

Solid prints from the Chinese docket earlier in the Asian session have lent legs to the Aussie, although it still remains confined to the current consolidative range between 0.6900 and just above the 0.7000 yardstick.

The continuation of the bullish move in spot has also come despite the resurgence of a decent rebound in the US Dollar (USD) amid increasing US Treasury yields and steady bets for extra tightening by the Federal Reserve in Q4.

Looking at the broader picture, spot remains vulnerable to further losses as long as it continues to trade below its 200-day SMA near 0.7040. However, the Reserve Bank of Australia’s (RBA) hawkish policy stance, in combination with still elevated domestic inflation, should cushion against any deep and sustained corrections…for now.

Australia’s resilience faces a reality check

Australia’s economy continues to compare favourably with many of its G10 peers, supported by domestic demand and positive economic growth. Persistent inflation also supports the RBA’s cautious, data-dependent policy stance.

However, business activity seems to have lost some momentum after final data showed the Purchasing Managers’ Index (PMI) for Manufacturing cooling to 49.6 in September and easing to 51.9 when it comes to Services, from 52.0 and 53.2, respectively.

Trade data provided another positive, albeit humble, signal after August’s trade surplus came in at just A$0.495 billion, adding to the A$1.351 billion surplus registered in the previous month (revised from A$1.923 billion).

Growth figures were less encouraging, however. Indeed, the Gross Domestic Product (GDP) expanded by 0.4% QoQ in the second quarter of 2026, up from 0.3%, while annual growth came in at 2.1%, down from the previous 2.5% yearly expansion.

The labour market, however, disappointed investors in September after the Unemployment Rate held steady at 4.7% (August’s print was revised higher to 4.7% from 4.6%), and the Employment Change shrunk by 39.3K, reversing August’s 29.3K increase (revised from 39.5K).

Inflation seems to have lost some impulse after the most-watched Trimmed Mean came in at 3.6% over the last twelve months, despite the headline CPI ticking higher to 4.0% from a year earlier.

The Melbourne Institute’s Consumer Inflation Expectations measure reinforced those figures after ticking higher to 5.3% in October.

The figures leave the RBA’s inflation task incomplete. Policymakers expect inflation to return to target only in early 2028, keeping the emphasis on patience rather than an imminent policy pivot.

China stabilises, but the growth engine is still sputtering

China is providing stability for the Australian economy, but not the growth impulse that has supported the Australian Dollar during previous expansions.

The Chinese economy grew by 4.5% YoY in the July-September period, while Industrial Production growth regained traction, expanding by 5.5% from a year earlier and 5.3% YDT. In addition, the latest trade data showed a $133.53 billion surplus in September, supported by firm increases in both imports and exports. Reinforcing this picture, consumer spending remained solid after Retail Sales expanded by 1.1% over the last twelve months.

In addition, business surveys presented a promising picture: the National Bureau of Statistics reported that the Manufacturing PMI improved to 50.1 in September (from 49.8), while the Services PMI improved to 50.2 (from 49.0). In the same direction, private measures like RatingDog remained in expansionary territory, with Manufacturing at 52.1 (from 51.5) and Services at 51.6 (from 51.4).

Disinflationary pressures seem to have taken a breather in September, with the CPI gaining 0.9% from a year earlier, up from 0.8%, while prices rose by 0.2% on a monthly basis. Producer Prices rose more than initially estimated by 5.0% over the previous twelve months, up from the 3.8% increase recorded in the previous month.

The People’s Bank of China (PBoC) meets on Tuesday and is forecast to keep its Loan Prime Rates (LPR) unchanged at 3.00% for the one-year tenor and 3.50% for the five-year tenor.

Following the latest string of results from Chinese fundamentals, they seem to finally add some optimism for Australia, which in turn is expected to morph into some sort of support for the AUD.

RBA keeps the tightening door wide open

In a unanimous decision, the RBA hiked its OCR by 25 basis points to 4.60% at its meeting in late September.

The RBA Minutes published earlier on Tuesday show a unanimous vote for more tightening. Indeed, all Board members voted for the 25 basis point rate hike, believing that excess demand was stronger than previously assumed and that the risk of persistently high inflation had increased. Furthermore, policymakers debated whether to hold rates for a moment but decided to take timely action to keep inflation expectations anchored.

Additionally, the RBA highlighted broad domestic cost pressures, higher unit labour costs, elevated oil prices and emerging inflation risks from the AI boom. Some indicators suggested financial conditions were only modestly restrictive, while models implied the neutral rate may have moved higher. The Board also warned that a rise in global neutral rates could weaken the Australian Dollar if domestic rates failed to follow.

Overall, the Minutes were clearly hawkish and leave further tightening firmly on the table, although policymakers remain mindful of falling house prices and the risk of slowing economic activity.

In the wake of the latest labour market data in Australia, markets now pencil in just over 9 basis points of tightening from the RBA by year-end.

AUD/USD struggles to regain its bullish footing

Baseline outlook

A further sidelined mood should not be ruled out in the short-term horizon. In the meantime, and looking at the broader picture, the pair should face a steady chance of further declines while below the 200-day SMA around 0.7040.

The resumption of the bullish bias will likely require a strong catalyst, namely a sustained improvement in risk appetite trends or renewed and persistent weakness in the Greenback.

Upside scenario

A stronger risk-on environment should face the initial barrier at the key 0.7000 threshold, closely followed by the 200-day SMA, all preceding the weekly top at 0.7140 (September 21). North from here, a test of the 2026 ceiling near 0.7280 should come into view.

Downside scenario

In case bears regain control of sentiment surrounding the Aussie, there should be initial support at the October valley of 0.6894 (October 15). A breach below this level would increase the likelihood of a retest of the June bottom near 0.6860 (June 30).

Shorts hit five-year extremes as options turn defensive

Non-commercial bearish positioning in AUD intensified sharply in the week ending October 13, according to the Commodity Futures Trading Commission (CFTC) data. Indeed, speculative net shorts rose to almost 117.3K contracts, while the weekly decline moderated to just over 18.7K contracts. However, the four-week change deteriorated further to nearly -78.4K contracts, confirming that the broader bearish trend remains firmly in place.

In addition, open interest increased to nearly 339.5K contracts, the highest level in the past four weeks. Deeper net shorts and higher participation point to fresh bearish positions continuing to build, rather than the move being driven solely by liquidation.

Speculative exposure decreased to -34.6% as well, and its percentile decreased to 33.7,  which means the short exposure is not at an extreme historically relative to the open interest. However, the Net Position Percentile fell to the 0.0 area, indicating that the absolute net-short position is at its most bearish point in the five-year reference period.

Meanwhile, the options market continues to support the bearish AUD view. The one-month 25-delta risk reversal fell to -1.047 vol points on October 16, pointing toward downside protection becoming relatively more expensive. It’s at the 26th percentile of its five-year range, so it’s not surprising to see some bearish skew, but the skew to the downside is still quite modest.

More importantly, the bearish momentum in options has gained pace. Risk Reversals had a one-month change of -0.302 volatility points, a move that ranked in the 19.1st percentile of similar moves over the past. This suggests investors have been looking for more downside protection over the past month, adding to the signal of bearish positioning we are seeing from futures markets.

But the link between options pricing and spot moves is more subtle. Over the past month AUD/USD has fallen quite sharply, and risk reversals have softened by 0.302 volatility points, against an expected fall of around 0.220 based on the historical relationship. The resulting residual of -0.082 volatility points ranked 38th. The 4th percentile of the out-of-sample distribution suggests that options have repriced a bit more negatively than spot would alone suggest, but the deviation is still in a relatively normal historical range.

Overall AUD positioning remains decidedly bearish, with futures positioning and options pricing consistently signalling downside. However, the very low Net Position Percentile suggests that the short trade is becoming increasingly vulnerable to a squeeze, especially if the macro backdrop improves or bearish momentum starts to fade. However, the relatively tame speculative exposure percentile and the lack of any unusually aggressive options repricing at the same time imply that although the bearish sentiment has taken hold, it is not universally extreme across markets.

External forces hold the key to the Aussie’s next move

US Dollar dynamics, global risk sentiment, and geopolitical developments remain the main near-term drivers of AUD/USD.

Data-wise, the Australian docket is pretty light this week, with the preliminary gauges of business activity expected toward the end of the week.

Beyond that, the main risks are expected to emerge from China, a persistently cautious Fed, a deterioration in investor risk appetite or a change in the RBA’s current policy stance. Any of these developments could quickly alter the outlook for the Australian currency.

Technical analysis

In the daily chart, AUD/USD trades at 0.6978, holding a bearish near-term bias as spot remains capped beneath the 100-day simple moving average (SMA) at 0.7037 and the 200-day SMA at 0.7045, with the 55-day SMA higher at 0.7076 reinforcing the overhead supply zone. The Relative Strength Index (14) hovering just below the 50 line and an elevated Average Directional Index (14) around 39 suggest a still-active downtrend, though selling momentum is moderate rather than impulsive.

On the topside, immediate resistance is clustered around the 100-day SMA at 0.7037 and the 200-day SMA at 0.7045, followed by the 55-day SMA at 0.7076 and the nearby horizontal barrier at 0.7079; a daily close above this band would be needed to ease downside pressure and open the way toward 0.7278 and 0.7283, ahead of the more distant 0.7661 high. On the downside, initial support emerges at the horizontal level near 0.6833, with deeper floors at 0.6660 and 0.6593; sustained weakness below these levels would expose the broader support area around 0.6414 and 0.6373.

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

The Aussie’s paradox: Hawkish RBA, bearish markets

Some dark clouds continue to hover around the AUD’s near-term outlook.

Australia’s domestic backdrop compares favourably with that of many advanced economies, and the RBA is in no hurry to abandon its hawkish stance. These factors should somewhat contain the bearish impulse.

The recovery nevertheless remains vulnerable to renewed strength in the Greenback, persistent geopolitical uncertainty and a Chinese economy that is stabilising rather than accelerating.

The 200-day SMA remains the key level for the medium-term outlook. Holding above it preserves the constructive structure, but a convincing break above 0.7200 is necessary to further extend the bull run.

However, such a move would require the resumption of the downward trend in the Greenback, stronger demand for risk-sensitive assets, additional cooling in US inflation, or a (less likely) dovish shift from the Fed.

Until then, external forces are likely to exert more influence over the Australian Dollar than domestic fundamentals.