Australian Dollar Price Forecast: Extra consolidation on the cards

The Aussie Dollar seems to have embarked on a consolidative phase, with AUD/USD finding support around the 0.7100 neighbourhood while the upside appears capped by the YTD tops just below 0.7200 the figure. For now, the pair’s constructive tone should remain unchanged, reinforced by elevated domestic inflation and the RBA’s cautious bias

The Australian Dollar (AUD) manages to gather some fresh buying interest and lifts AUD/USD back to just pips away from the key 0.7200 barrier in the latter part of Tuesday’s session. That said, spot extends its consolidative mood for yet another day, with a clear contention zone emerging around the 0.7100 zone.

The pair’s bounce comes in response to the lack of clear direction in the US Dollar (USD) despite geopolitical concerns in the Middle East remain unabated as well as persistent uncertainty surrounding the Strait of Hormuz.

Australia still holding up, but momentum is clearly softening

Australia’s economy is still in relatively good shape, supported by solid domestic demand, but there is a growing sense that momentum is starting to fade.

The broader narrative hasn’t shifted dramatically. That said, domestic economic growth continues to outperform many peers, inflation remains sticky in key areas, and the Reserve Bank of Australia (RBA) is sticking to a cautious, data-dependent stance after an already aggressive tightening cycle.

That said, the latest data suggests the economy is no longer accelerating. April’s preliminary Purchasing Managers’ Index (PMI) showed Manufacturing at 51.0 and Services at 50.3, both still in expansion territory, but only just. It feels more like a slow grind than a meaningful pickup in activity.

There are still pockets of strength: the trade surplus widened to A$5.686 billion in February, the strongest since mid-2025, while the Gross Domestic Product (GDP) held firm at 0.8% QoQ and 2.6% YoY.

Even so, the labour market is starting to cool at the margin after the Unemployment Rate held at 4.3% in March and the Employment Change slowed to 17.9K from nearly 50K previously. Still solid, but clearly losing some momentum.

Inflation remains the key issue, however. On this, the latest Consumer Price Index (CPI) came in at 4.1% YoY, while both the Trimmed Mean and Weighted Median held at 3.5% YoY. Any clear signs of disinflation have faded in recent months.

For the RBA, that means the job is far from done. Officials continue to signal that inflation may only return to target around mid 2028, keeping the focus firmly on patience rather than any near term pivot.

China is no longer a tailwind, just a stabiliser

China is no longer providing the same lift to Australia as in previous cycles. Instead of acting as a growth engine, it now looks more like a stabilising force.

Growth is still respectable on paper, with the economy expanding by a solid 5.0% YoY in the first quarter. Retail Sales are also moving higher, up 2.43% annually since the start of the year and 1.7% YoY. But the underlying momentum feels softer than before.

That softer tone is particularly visible externally: the trade surplus narrowed sharply in March to just over $51 billion from nearly $214 billion previously, pointing to weaker demand dynamics.

When it comes to business activity, surveys seem to tell a similar story: the National Bureau of Statistics (NBS) reported Manufacturing PMI at 50.3 in April, while Services slipped into contraction at 49.4. Meanwhile, private gauges, such as RatingDog, still point to expansion, with Manufacturing improving to 52.2.

Inflation data reinforces that middle-ground view. Indeed, the CPI rose 1.0% YoY in March, while Producer Prices increased by 0.5% YoY, moving out of deflation but not signalling strong price pressures.

Against this backdrop, the People’s Bank of China (PBoC) kept its steady hand in April, leaving Loan Prime Rates (LPR) unchanged at 3.00% for the one year tenor and 3.50% for the five year tenor.

All in, China is no longer driving growth higher, but it is not dragging it down either. It is simply keeping things steady.

Inflation first, growth later: RBA signals a more difficult path ahead

The RBA matched consensus early on Tuesday and raised 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.

She 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.

To sum up

The RBA 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.

AUD/USD, the move is there, but conviction still lacking

Base case:

The pair has managed to convincingly break above the 0.7100 level, but it remains heavily dependent on the broader backdrop. Without sustained US Dollar weakness or a stronger risk environment, the move could struggle to hold.

Bull case:

If risk appetite improves meaningfully, the pair could decisively confront the YTD peak near 0.7200 the figure, bolstering the current constructive narrative.

Bear case:

Sentiment, however, might deteriorate, the Greenback could strengthen, or Chinese data might disappoint on a continued basis, all exposing the pair to occasional bouts of selling pressure, eventually even breaking below 0.7000, and thus opening the door to a deeper move sooner rather than later.

The rally is real, but it still feels fragile. Markets are not fully convinced yet.

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. Later in the week, trade balance results from Australia and China will be the salient events on the docket.

Key risks include a sharper slowdown in China, a more aggressive Federal Reserve (Fed), or any shift in the RBA’s stance. Any of these could quickly destabilise the Australian currency.

Technical Analysis

In the daily chart, AUD/USD trades at 0.7189, holding a constructive bullish bias as spot consolidates just above the former swing high and horizontal support around 0.7188. The pair is comfortably above the 55-day, 100-day and 200-day simple moving averages (SMAs) clustered between roughly 0.7066 and 0.6751, which reinforces an underlying uptrend, while the Relative Strength Index near 59 points to positive but not overextended momentum and a subdued Average Directional Index around 14 hints at a still-moderate trend strength.

On the downside, initial support is located at the 0.7188 zone, where horizontal support converges with the 0.0% Fibonacci anchor, followed by the 23.6% retracement at 0.7007 and the 55-day SMA at 0.7066 if a deeper pullback unfolds. Below these, the 100-day SMA near 0.6958 and the 38.2% retracement at 0.6895 guard a broader demand band ahead of 0.6833 and the 50.0% retracement at 0.6804, while the 200-day SMA at 0.6751 and successive horizontal and Fibonacci supports down to the 0.6420s mark the lower structural floor; on the topside, immediate resistance aligns at 0.7283, with a break opening the way toward the more distant barrier at 0.7661.

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

All in all: Constructive, but not quite there yet

The broader backdrop for the Australian Dollar remains supportive, with the RBA’s stance helping to provide a floor on dips.

That said, this is still a currency that trades heavily on sentiment. When confidence is strong, the Aussie tends to perform. When uncertainty creeps in, the US Dollar usually takes over.

So while the medium-term story remains constructive, the near-term outlook is still uncertain. The move higher is there, but conviction is not quite there yet.