Australian Dollar Price Forecast: Extra pullbacks should not be ruled out
- AUD/USD loses its grip and approaches the 0.6900 region, a multi-week low.
- The US Dollar keeps its bullish momentum bolstered by intense geopolitical jitters.
- Markets expect another rate hike by the RBA at the May meeting.
The Australian Dollar (AUD) has lost some of its recent upside momentum in recent sessions, prompting AUD/USD to give back part of its earlier gains. That said, persistently elevated domestic inflation and the Reserve Bank of Australia’s (RBA) cautious stance should continue to offer support to the currency for now.
The selling bias around the Australian Dollar (AUD) shows no signs of stalling so far, motivating AUD/USD to flirt with the area of multi-week lows near the 0.6900 neighbourhood.
The persistence of the negative mood surrounding spot follows the ongoing improvement in the Greenback, which remains well supported by safe-haven demand coming from ongoing geopolitical concerns in the US-Israel-Iran crisis.
Australia: still strong, but losing steam
The main point is that Australia's narrative hasn't altered much. The background is still strong enough to support the Australian Dollar (AUD), but not weak enough to make the RBA feel better. The central bank is still leaning hawkish, inflation is still high, and growth is still strong. All of these things are good for the currency.
That said, there are some initial signs suggesting a return to stability.
The Purchasing Managers' Index (PMI) for March is predicted to be 50.1 in manufacturing and 46.6 in services, which means that business activity seems to be slowing down. Trade continues to help, with a surplus of A$2.631 billion at the start of the year.
Momentum is still there in a bigger sense. In the fourth quarter, the Gross Domestic Product (GDP) grew by 0.8% from the previous quarter and 2.6% from the previous year. The job market is getting better slowly, with unemployment at 4.3% and the number of people who are working changing by 48.9K.
The biggest problem is still inflation. The most recent numbers reveal only small improvements. The Consumer Price Index (CPI) dipped, from 3.8% year-on-year in February to 3.7%. The Trimmed Mean also fell, from 3.4% to 3.3% YoY. The Weighted Median followed suit, decreasing from 3.6% to 3.5% from a year earlier. While disinflation is underway, the pace is sluggish, and the RBA believes it's insufficient. Inflation is not forecast to reach its goal again until the middle of 2028, which will keep the pressure on.
China: sustained support, little rise
It's evident that China's position in Australia's future has changed. It is no longer the main driver of expansion; instead, it is a stabilising factor in the background.
In the fourth quarter of 2025, the economy grew by 4.5%, while retail sales grew by 2.8% over the previous year. Trade circumstances are still mostly good, but the overall situation is more complicated. The National Bureau of Statistics' (NBS) official Purchasing Managers' Index (PMI) numbers still show a contraction, while private polls like RatingDog show a more positive picture.
Inflation changes make things much more complicated. The Consumer Price Index (CPI) went up 1.2% year over year in February, while the Producer Price Index (PPI) is still in deflation at -0.9% YoY. When it comes to monetary policy, the People's Bank of China (PBoC) stayed on hold this month, leaving the Loan Prime Rates (LPR) at 3.50% and 3.00% for the one-year and five-year rates.
Back to the Aussie, the takeaway is apparent: China is no longer a problem, but it's not helping either.
RBA: definite direction, but time is uncertain
The RBA's latest interest rate decision showed a close vote of 5 to 4 to raise the Official Cash Rate (OCR) to 4.10%, highlighting how divided the Board is.
The core message stays the same. There are still capacity problems, and increasing oil costs might make inflation worse in the short term. Governor Michele Bullock said that too much demand is still the fundamental problem, and changes in energy prices pose further risks to the upside.
At this point, the argument is more about when than where. Some authorities want to take a break to see how outside shocks affect the economy. The markets are leaning that way, with prices showing a halt in May but still anticipating around 65 basis points of more tightening this year.
Positioning: getting better, but not very strong yet
Positioning statistics show that people's feelings on the AUD are becoming better. The most recent numbers from the Commodity Futures Trading Commission (CFTC) reveal that net long holdings are just over 69K contracts.
Open interest, on the other hand, has declined substantially to around 265K contracts, which suggests that short covering is more likely than new purchasing. The price activity backs this thesis, as the AUD/USD is going back into the 0.7100 region.
Even if the positioning has become better, conviction is still low. The change seems to be more about relieving bearish pressure than a substantial rise in positive demand.
What you should take away from FX
The AUD is starting to seem better supported, although the reasons for this are not yet totally clear. In the short term, it is still quite vulnerable to changes in global risk sentiment and news from China. For a rise upward to be sustained, it would probably need real inflows instead of just repositioning.
AUD/USD outlook
Short term: the US Dollar and the overall mood of the market are expected to keep driving AUD/USD, especially with tensions still high in the Middle East.
Risks: a drop in risk appetite, bad news from China, or an unexpected change in the RBA's position may swiftly swing the balance against the pair.
Technical levels
In the daily chart, AUD/USD trades at 0.6911. The near-term bias is neutral with a slight downside tilt, as spot has slipped below the 38.2% Fibonacci retracement at 0.6870 measured from the 0.6421 low to the 0.7147 high, hinting that the prior rally is losing momentum. Daily closes remain comfortably above the rising 55-, 100- and 200-day Simple Moving Averages (SMAs), which sustain a broader bullish backdrop even as the pullback unfolds. The Relative Strength Index (RSI) at 40 drifts below the 50 line, reflecting softening bullish momentum but not outright oversold conditions, while the Average Directional Index (ADX) edging back toward the low-20s signals a waning trend phase and favours consolidation.
Immediate support aligns at the horizontal level around 0.6897, with the 38.2% retracement at 0.6870 reinforcing that area; a daily close below this band would expose the 50% retracement at 0.6784 as the next downside objective. Below there, structural support is seen at 0.6660, close to the rising 200-day SMA, before the lower horizontal floor at 0.6593. On the topside, initial resistance comes at the 23.6% retracement at 0.6976, ahead of the recent swing area near the Fibonacci high at 0.7147 and the horizontal resistance at 0.7158. A sustained break above 0.7158 would be needed to reinstate a clear bullish trend toward the higher resistance band at 0.7283.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: supported, but not easy
The RBA has not said that it plans to pull back, and Australia's economy is still strong. But this is not a one-way deal at all.
The AUD usually does well when people are not worried about risk. When things become more volatile, the US Dollar takes back control. The bias is still in favour, but it comes with explicit caveats.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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.
