Australian Dollar Price Forecast: Fed cuts, China data and RBA signals in focus
- AUD/USD extended its recovery well past the 0.6500 hurdle on Monday.
- The US Dollar fell to fresh lows ahead of key data releases later in the week.
- The Australian final S&P Global Manufacturing PMI rose to 53.0 in August.
The Australian Dollar (AUD) extended its gains on Monday, with AUD/USD pushing well past 0.6500 and adding to the ongoing robust leg higher. The move came as the US Dollar (USD) slipped, weighed down by uncertainty over White House trade policy, Federal Reserve (Fed) rate-cut bets, and renewed tensions over President Trump’s attacks on the central bank.
Inflation still running hot
Australia’s July Monthly CPI Indicator (Weighted Mean) rose to 2.8%, up from 1.9% in June, while Q2 CPI added 0.7% inter-quarter and 2.1% from a year earlier, keeping inflation concerns alive and supporting the Reserve Bank of Australia’s (RBA) cautious stance.
Resilient economic backdrop
Economic data has painted a fairly upbeat picture. The final August Manufacturing PMI came in on the strong side, up to 53.0, while the flash services print is expected at 55.1. Retail sales jumped 1.2% in June, while the trade surplus widened to A$5.365B. The labour market also yielded positive results, as unemployment dropped to 4.2%, accompanied by a 24.5K increase in jobs.
The latest release of Private Capital Expenditure showed a 0.2% increase in Q2, pointing to solid investment in buildings, structures and equipment.
RBA stays data-dependent
The RBA cut rates by 25 basis points earlier this month to 3.60% and trimmed its 2025 growth outlook. Governor Michele Bullock pushed back on calls for steeper cuts, stressing that policy remains “data-dependent”. Markets are now pricing another 25 basis point cut by November 5.
Minutes released last week suggested faster easing could be on the table if the labour market softens, though a slower path is likely if conditions remain tight.
China remains the swing factor
China’s economy remains uneven. GDP grew 5.2% YoY in Q2 and industrial output rose 7%, but retail sales were disappointing. Official PMIs came in mixed in August, with the manufacturing gauge at 49.4 and the services print up a tad to 50.3. In addition, the trade surplus narrowed, and inflation was flat. Looking at monetary policy, the People’s Bank of China (PBoC) left both its One-Year and Five-Year Loan Prime Rates (LPR) unchanged last month, as widely anticipated.
Speculators stay bearish
In its latest report, the Commodity Futures Trading Commission (CFTC) showed speculative net shorts in the Aussie Dollar climbing to levels last seen in April 2024 around 100.6K contracts for the week ending August 26. Additionally, open interest increased for the fourth consecutive week, this time to nearly 191.2K contracts.
Tech picture: Stuck in a range
Right now AUD/USD is bouncing between 0.6400 and 0.6600.
On the upside, the first hurdle is the weekly top at 0.6568 (August 14), prior to the 2025 ceiling at 0.6625 (July 24). A break higher would open the door to the November 2024 peak at 0.6687 (November 7), with the psychological 0.7000 level further out.
On the other hand, the initial support is currently holding at 0.6414 (August 21). A move lower would put the 200-day Simple Moving Average (SMA) at 0.6385 in focus, seconded by the June floor at 0.6372 (June 23).
Momentum signals remain mixed: the Relative Strength Index (RSI) beyond 58 shows some buying conviction, but the Average Directional Index (ADX) under 15 points to a pale trend.
AUD/USD daily chart
Short-term outlook: Rangebound for longer?
Until a clear catalyst emerges, whether from stronger Chinese data, a shift from the Fed, or a surprise from the RBA, AUD/USD looks set to stay locked in its 0.6400–0.6600 range.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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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.
