Australian Dollar Price Forecast: Further weakness on the cards
- AUD/USD resumes its downtrend and trades below its 200-day SMA.
- The US Dollar retreats markedly following disheartening data and Fed rate cut bets.
- Australian inflation figures will take centre stage on Wednesday.
The Australian Dollar (AUD) is on the back foot again, giving up some of the early-week optimism. That pullback has pushed AUD/USD back below its key 200-day SMA near 0.6460, wiping out two straight days of gains.
What makes the move more interesting is that it comes even as the US Dollar (USD) continues to lose ground. Softer US data, especially Retail Sales and Producer Prices, has fuelled expectations that the Federal Reserve (Fed) might start easing as early as December, yet the Aussie still couldn’t hold its footing.
Australia: Steady progress, nothing dramatic
Australia’s economy isn’t roaring ahead, but it’s hardly stalling. November’s preliminary PMIs painted a decent picture: Manufacturing climbed to 51.6 (from 49.7) and Services nudged up to 52.7 (from 52.5).
Retail Sales weren’t bad either, rising 4.3% YoY in September, and the trade surplus widened to A$3.938 billion. Business Investment picked up in Q2, helping GDP grow 0.6% QoQ and 1.1% from a year earlier. It’s all fairly middle-of-the-road, but solid enough.
The labour market also showed signs of life. October’s Unemployment Rate dipped to 4.3%, and Employment Change rebounded with a +42.2K print — a hint that the softness seen earlier in the year may be easing.
On inflation, ahead of Wednesday’s release, October’s monthly CPI is expected to show that price pressures remain stubborn. The RBA’s surprisingly firm quarterly inflation print last month pushed policymakers into a more hawkish stance, and the upcoming data may reinforce that shift.
China: Helpful, but not powering the story
China is still a key part of Australia’s economic backdrop, though its recovery hasn’t kicked into a higher gear.
GDP grew 4.0% YoY in Q3 and Retail Sales were up 2.9% YoY in October. But momentum softened elsewhere: the RatingDog Manufacturing PMI slipped to 50.6 and Services dipped to 52.6. Industrial Production also underwhelmed at 4.9% YoY.
Trade told a similar story, with the surplus narrowing from $103.33 billion to $90.45 billion in September. Inflation was one of the few bright spots: Headline CPI bounced back to 0.2% YoY thanks to holiday demand, while core CPI improved to 1.2%.
As expected early this month, the People’s Bank of China (PBoC) left its Loan Prime Rates (LPR) unchanged at 3.00% for the one-year and 3.50% for the five-year.
RBA: Calm, cautious, and in no rush
The Reserve Bank of Australia (RBA) kept rates at 3.60% at its early-November meeting, a widely expected pause. The messaging was measured: No urgency to tighten further, but no signal of imminent cuts either.
The RBA highlighted sticky inflation and a labour market still tight enough to keep upward pressure on prices. Governor Michele Bullock described policy as “pretty close to neutral,” hinting that the current stance may simply need more time to work.
She also pointed out that the 75 basis points of cuts already delivered haven’t fully filtered through the system yet. Policymakers want clearer signs that demand is slowing before making their next move.
Markets reflect that wait-and-see mood: Pricing shows a 93% chance of no change on December 9, and only about 6 basis points of cuts priced in through end-2026.
The November Minutes fleshed out the thinking, noting three reasons to hold steady: Stronger demand, sticky inflation or weak productivity, and a still-restrictive policy stance. But they kept the door open, a softer labour market or a sharper pullback in household spending could shift the balance toward easing.
Technical landscape
AUD/USD remains well under pressure and is trading close to the lower end of its 0.6400-0.6700 range.
A convincing break below the key 200-day SMA at 0.6460 should shift the focus to the November trough at 0.6421 (November 21), prior to the October base at 0.6440 (October 14), and the August valley at 0.6414 (August 21). The loss of the later should pave the way for a move toward the June low of 0.6372 (June 23).
Alternatively, the surpassing of the temporary 100-day and 55-day SMAs at 0.6532 and 0.6546, respectively, could put a test of the November high at 0.6580 (November 13) back on the radar. Extra advances from here should target the October top of 0.6629 (October 1), ahead of the 2025 ceiling of 0.6707 (September 17).
Supporting the bearish theme, momentum indicators show the Relative Strength Index (RSI) hovering over the 40 level, while the Average Directional Index (ADX) rebounding to nearly 15 suggests some incipient strengthening of the trend.
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Big picture: Still a tricky backdrop for the Aussie
AUD/USD still feels a bit vulnerable. A clean break below 0.6400 could open the door to a deeper slide. China’s slow and uneven post-COVID recovery isn’t helping, nor are the broader trade uncertainties that continue to hang over the outlook.
But it’s not all downside. The RBA’s careful stance, marginally better signals from China, and the softer tone in the US Dollar are offering some support, even if any upside for the Aussie is likely to be gradual and hard-won.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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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.
