Australian Dollar Price Forecast: Correction could extend to 0.7200

The Aussie Dollar’s uptrend seems to have met some decent resistance in the 0.7270-0.7280 band so far, with AUD/USD still looking for a strong catalyst to extend its rally and dispute the yearly peaks and higher levels. In the meantime, the pair’s constructive outlook remains unchallenged for now, reinforced by elevated domestic inflation and the RBA’s hawkish approach.

The Australian Dollar (AUD) comes under fresh downside pressure, motivating AUD/USD to rapidly erode Wednesday’s gains and refocus its trade on the low 0.7200s on Thursday.

The pair’s correction follows the continuation of the bullish sentiment in the US Dollar (USD) as investors keep assessing the recent higher-than-estimated inflation prints, while hopes of a potential US-Iran deal that ends the current crisis in the Middle East seem to be fading.

How solid are Australian fundamentals?

The Australian economy does look healthy and stable altogether and, honestly, is 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 a 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 preliminary data from the Purchasing Managers’ Index (PMI) showed Manufacturing at 51.0 and Services at 50.3, both recovering and back to expansion territory in April. However, this bounce feels more like a slow grind higher than a meaningful pickup in activity… for now.

In the opposite direction, the latest trade balance figures showed an unexpected deficit of A$1.841 billion in March, markedly lower than the A$5.026 billion recorded in February. The Gross Domestic Product (GDP), meanwhile, showed the economy expanded by 0.8% QoQ and 2.6% YoY in late 2025.

On the not-so-bright side, the labour market seems to be somewhat cooling: the Unemployment Rate remained at 4.3% in March, and the Employment Change slowed sharply to 17.9K from close to 50K recorded in the previous month.

Back to the thorny inflation issue: the latest Consumer Price Index (CPI) came in at 4.1% YoY, with both the Trimmed Mean and Weighted Median running at 3.5% YoY. Following these prints, any real sense of disinflation now appears dim, undermining any prior hopes that an incipient disinflationary trend might be in the offing.

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 is no longer carrying the global story

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

Let’s see some numbers: the economy expanded by 5.0% YoY in Q1, Retail Sales gained 2.43% since the beginning of the year and 1.7% over the last twelve months.

Of note is the sharp reduction of the trade surplus, which narrowed to just over $51 billion in March from nearly $214 billion previously, all in response to weaker demand dynamics.

However, business activity seems to be regaining traction after the National Bureau of Statistics (NBS) reported Manufacturing PMI at 50.3 in April, while Services slipped into contraction territory at 49.4. At the same time, private gauges such as RatingDog still point to expansion, with Manufacturing climbing to 52.2 and Services up to 52.6.

The disinflationary pressure in China has been losing steam, as the CPI rose 1.2% YoY in April, while Producer Prices jumped by 2.8% YoY, moving further away from deflation.

And what about the People’s Bank of China (PBoC)? As expected, it kept the Loan Prime Rates (LPR) unchanged at 3.00% for the one-year tenor and 3.50% for the five-year tenor last month.

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

The RBA is not ready to pivot just yet

The RBA matched consensus earlier in the month, lifting its Official Cash Rate (OCR) by 25 basis points to 4.35%. The statement read like a central bank dealing with a more complicated world: the outlook has clearly worsened, with growth marked down and inflation pushed higher, leaving policymakers facing a more uncomfortable trade-off.

Inflation is now expected to stay higher for longer, with the CPI only returning to target around 2027–2028. At the same time, the GDP is set to run below trend, and the jobless rate is seen gradually drifting higher.

A big part of that shift comes from the oil shock linked to the Middle East conflict. The bank sees it as a hit to growth but also a fresh source of inflation pressure, exactly the kind of mix central banks dislike. There are even references to possible energy shortages if the situation drags on.

For now, though, there is little sign that demand has rolled over in a meaningful way, and underlying inflation pressures remain firm, with businesses increasingly expected to pass on higher costs.

In her press conference, Governor Michele Bullock sounded a bit more measured. The key message is that rates are now in restrictive territory, which gives the RBA some breathing space.

In her words, the bank can now afford to “sit and see”, taking time to assess how the shock plays out rather than rushing into further moves. That in itself feels like a shift in tone.

Still, the door to more tightening is not closed. Bullock made it clear that if higher costs start feeding into inflation expectations, the RBA would have to respond, potentially with higher rates.

Bullock also framed the situation quite bluntly, describing the oil shock as something that reduces real incomes and “makes us poorer”, while warning that even a quick resolution would not prevent higher costs from lingering.

All in all

The central bank is still focused on inflation, but it sounds less eager to keep tightening aggressively. Rates are now seen as restrictive enough to pause if needed, although risks around energy and inflation expectations mean the job is not fully done yet.

In the meantime, markets expect the RBA to keep its OCR unchanged at its June 16 gathering, while pencilling in nearly 34 basis points of extra tightening by year-end.

AUD/USD keeps climbing, but the move lacks follow through

Base case

The pair has managed to break above the key 0.7200 level, but it still feels heavily dependent on the broader backdrop. Without a sustained improvement in risk sentiment or continued US Dollar weakness, the move could start to lose traction.

Bull case

Further conviction is needed. If risk appetite picks up serious pace, spot could extend the uptrend and challenge 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.

Bear case

Some loss of momentum should not be ruled out in the current volatile context. If sentiment deteriorates, the Greenback picks up pace, or Chinese data disappoints, spot could slip back below the initial contention zone at 0.7100, opening the door to a deeper move at the same time.

The rally is there, although markets are still not fully convinced.

Speculative bets continue to prop up the Aussie

According to the latest Commodity Futures Trading Commission (CFTC) data, speculative net longs in the Australian Dollar increased to five-week highs of nearly 78.7K contracts for the week ending May 5.

The move also came in tandem with the third consecutive uptick in open interest, this time hitting around 279.5K contracts.

It is worth recalling that speculators’ sentiment toward the Aussie shifted in late January following several years of being net short.

This shift in mood echoes in the pair’s price action, which was trading in the 0.6900 region in late January and approached the 0.7300 region at some point last week.

What actually matters for the Aussie right now

In the near term, it is still all about the US Dollar, global risk sentiment, and geopolitics. Those remain the key drivers of price action. Next on tap in Oz will be the Consumer Inflation Expectations survey, expected to tick a tad higher for the current month.

Key risks include a sharper slowdown in China, a more aggressive Federal Reserve (Fed), a change of heart from investors when it comes to risk sentiment, or any shift in the RBA’s stance. Any of these could quickly destabilise the Australian currency in the short-term horizon.

Technical landscape

In the daily chart, AUD/USD trades at 0.7222, holding a constructive bullish bias as it extends above the short- and medium-term simple moving averages (SMAs). The 55-day SMA around 0.7086, the 100-day SMA near 0.6999 and the 200-day SMA at 0.6778 all sit beneath spot, suggesting a maturing uptrend backed by layered support. The Relative Strength Index (14) hovers in the upper mid-50s, hinting at steady positive momentum, while the subdued Average Directional Index (14) points to a trend that is present but not especially strong, leaving the pair exposed to swings within the prevailing upward structure.

On the downside, immediate support emerges at the horizontal level around 0.7102, reinforced by the nearby 55-day SMA at 0.7086, with the 100-day SMA at 0.6999 and the 0.6833 horizontal line providing deeper cushions before the longer-term 200-day SMA at 0.6778 and the structural floor at 0.6660. On the topside, initial resistance is seen at 0.7283, with a break above this barrier exposing the next key ceiling at 0.7661, where the broader bullish recovery would face a more substantial test.

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

Bottom line: conditions are improving, but conviction has yet to fully return

The broader backdrop for the Australian Dollar remains supportive, and the RBA’s stance should continue to provide a degree of support on dips.

But this is still a currency that trades heavily on sentiment. When confidence is strong, the Aussie performs well. When uncertainty creeps in, the US Dollar 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.