Australian Dollar Price Forecast: Further consolidation likely near term

AUD/USD continues to chop sideways below the 0.6700 mark, weighed down by a firm US Dollar and a generally soft tone across risk-linked assets.

The Australian Dollar (AUD) is still struggling to find a clear direction, keeping AUD/USD slightly on the positive side near the 0.6700 area so far on Thursday.

This doesn’t look like a change in the broader narrative. If anything, it’s a reminder that the US Dollar (USD) is still firmly in control for now.

Indeed, the pair’s tepid bullish stance comes as the Greenback regains its bid. Better-than-expected figures from the latest weekly US labour market report have helped reinforce the buck’s momentum at a time when investors appear to be brushing aside concerns over Federal Reserve (Fed) independence and speculation about further rate cuts later this year.

That said, the broader picture hasn’t really deteriorated. Spot is still holding above both its 200-week and 200-day Simple Moving Averages (SMAs), at 0.6624 and 0.6524, which keeps the medium-term bias tilted to the upside. In that light, the recent sideways action looks more like a pause to catch its breath than the start of a genuine trend reversal.

Australia: cooling, but nothing breaking

Australia’s latest data haven’t exactly sparked enthusiasm, but they haven’t caused alarm either. Growth is slowing, but in a controlled way that still fits the soft-landing narrative.

December Purchasing Managers’ Index (PMI) readings told a familiar story. Both Manufacturing and Services edged lower in the preliminary estimates but remained comfortably in expansion territory. Retail Sales are holding up reasonably well, while the trade surplus narrowed to A$2.936 billion in November, still firmly positive.

Momentum has eased somewhat. Gross Domestic Product (GDP) grew by 0.4% inter-quarter in Q3, down from 0.7% previously. Even so, annual growth held steady at 2.1%, broadly in line with Reserve Bank of Australia (RBA) projections.

The labour market is also starting to cool at the margin. Employment Change fell by 21.3K in November, but the Unemployment Rate stayed unchanged at 4.3%, pointing to moderation rather than outright weakness.

Inflation remains the trickiest part of the picture. Price pressures are easing, but only gradually. Headline Consumer Price Index (CPI) slowed to 3.4% in November, while the trimmed mean dipped to 3.2%, still well above the RBA’s comfort zone. Meanwhile, the Melbourne Institute’s Consumer Inflation Expectations edged lower to 4.6% from 4.7%.

China still matters, just less dramatically

China continues to provide some support for the Aussie, although the impact is far more subdued than in previous cycles.

GDP growth held at an annualised 4.0% in the July–September period, while Retail Sales rose 1.3% from a year earlier in November. Solid figures, but a far cry from the pace that once supercharged the AUD.

More recent data hint at tentative improvement: Both the official Manufacturing PMI and the Caixin index crept back into expansion territory at 50.1 in December. Services activity also firmed, with the non-manufacturing PMI at 50.2 and Caixin’s Services PMI holding at a healthy 52.0.

Trade data were another bright spot. The surplus widened to $111.1 billion in December, with exports up nearly 7% and imports rising 5.7%.

Inflation signals, however, remain mixed, as the headline CPI was unchanged at 0.8% YoY in December, while Producer Price Index (PPI) inflation stayed negative at -1.9%, a reminder that deflationary forces haven’t fully faded.

For now, the People’s Bank of China (PBoC) is taking its time. Loan Prime Rates (LPR) were left unchanged in December, reinforcing the view that any policy support will be gradual rather than forceful.

The RBA: steady hand, no rush

The RBA delivered a hawkish hold, keeping the cash rate unchanged at 3.60% and maintaining a firm policy tone.

Governor Michele Bullock made it clear the central bank is in no hurry to cut rates. She pushed back against near-term easing expectations, signalling the Board is comfortable staying on hold for longer and remains willing to tighten further if inflation fails to cooperate.

The December Minutes added a bit more colour, showing policymakers are still debating whether financial conditions are restrictive enough. For now, that keeps rate cuts firmly in the “not a given” camp.

Attention now shifts to the Q4 trimmed mean CPI print due later in January, which could shape the next stage of the policy discussion.

Even so, markets see around 25% chance of a rate hike by the RBA at its February meeting and nearly 40 basis points of easing this year.

Positioning: pessimism fades, confidence still thin

Market positioning suggests that the worst of the bearishness may be over, but there is still a lack of conviction. Commodity Futures Trading Commission (CFTC) data for the week ending January 6 show net short positions in the AUD trimmed to around 19K contracts, the smallest bearish bet since September 2024.

Open interest has gone up for the second week in a row and is now close to 231K contracts. That means new money is slowly coming back into the market, even though positioning still shows caution instead of a clear move into bullish territory.

What traders are watching next

Near term: US data releases and comments from Fed officials should continue to drive the USD side of the equation. Domestically, the labour market report remains the key local catalyst due on January 22.

Risks: The AUD remains highly sensitive to swings in risk appetite. A sudden risk-off turn, fresh worries about China’s outlook, or a stronger-than-expected resurgence in the US Dollar could quickly put a lid on any upside.

Technical landscape

If sellers regain control, AUD/USD should meet initial contention at weekly lows at 0.6659 (December 31) and 0.6592 (December 18), followed by the 0.6600-0.6585 band, where are located the intermediate 55-day and 100-day SMAs. A deeper pullback could expose a potential move toward the key 200-day SMA at 0.6524 before the November base at 0.6421 (November 21).

Alternatively, the 2026 ceiling of 0.6766 (January 7) emerges as the initial up barrier, followed by the 2024 high at 0.6942 (September 30) and the 0.7000 threshold.

In the meantime, further gains appear on the cards as long as spot trades above its 200-day SMA.

In addition, momentum indicators continue to favor extra advances in the near term: The Relative Strength Index (RSI) bounces toward the 56 area, while the Average Directional Index (ADX) around 28 suggest quite a strong trend.

Bottom line

No fireworks, but no clear reason to turn bearish either.

AUD/USD remains closely tied to global risk sentiment and China’s outlook. A clean break above 0.6800 would be needed to send a more convincing bullish signal.

For now, a choppy US Dollar, steady domestic data, an RBA that isn’t blinking, and modest support from China keep the balance tilted toward gradual gains rather than a decisive breakout.