Australian Dollar Price Forecast: Has the recovery kicked in?

The Aussie Dollar remains in a consolidative phase below the key 0.7000 threshold for now, while the constructive tone remains unchanged above the critical 200-day SMA. In the meantime, the dynamics surrounding the US Dollar continue to dictate spot price action, while the RBA’s cautious stance appears to have put a floor under the Aussie for now.

The Australian Dollar (AUD) picks up fresh upside traction at the beginning of the week, motivating AUD/USD to clinch its third consecutive daily advance and put some ground between recent multi-week troughs.

The pair’s rebound comes despite modest gains in the US Dollar (USD), which keeps recovering from last Thursday's marked retracement. That said, the US Dollar Index (DXY) builds on Friday's slight advance and flirts once again with the 101.00 barrier. 

Resilient, but losing momentum

The Australian economy does look healthy and stable altogether and, honestly, in much better shape than many of its G10 peers.

This performance appears underpinned by a solid domestic demand and pretty decent figures when it comes to economic growth. The spectre of sticky inflation seems to justify the cautious and data-dependent stance from the Reserve Bank of Australia (RBA), particularly following the latest meeting, where it raised rates to 4.35%, broadly in line with market expectations.

Supporting the above, the final data from the June Purchasing Managers’ Index (PMI) showed Manufacturing at 51.5 (from 50.7) and Services at 50.5 (from 48.7).

Removing some shine from the domestic fundamentals, the latest trade balance figures showed a A$3.018 billion deficit in May, reversing April’s A$1.383 billion surplus. The latest Gross Domestic Product (GDP) data, meanwhile, kind of disappointed expectations: the economy expanded by 0.3% QoQ in Q1 2026 (from 0.9%) and 2.5% YoY (from 2.5%), both prints missing consensus.

Still on the bright side, the labour market remains healthy. Indeed, the Unemployment Rate ticked lower to 4.4% in May (from 4.5%), and the Employment Change increased by 40.6K individuals (from the revised 40.7K drop seen in the previous month).

Regarding inflation, May data was far from telling after the Consumer Price Index (CPI) ticked lower to 4.0% from a year earlier (from 4.2%), while the Trimmed Mean and the Weighted Median rose to 3.6% over the last twelve months (from 3.4%). The pace of disinflation remains weak, although the direction is still broadly correct. Somehow reinforcing that view, the latest Melbourne Institute’s Consumer Inflation Expectations eased to 5.5% in May (from 5.6%).

For the RBA, that means the job is still incomplete, as policymakers continue to signal that inflation may only return to target around mid-2028, keeping the focus firmly on patience rather than any imminent pivot.

Looking ahead, investors expect the central bank to maintain its current stance at its August meeting, while they now anticipate just around 10 basis points of tightening by year-end.

China: Stability over stimulus

China now looks more like a stabilising force than the tailwind it usually provides to the Australian economy.

Let’s see some numbers: the economy expanded by 5.0% YoY in Q1, while Retail Sales unexpectedly contracted by 0.6% in the year to May but expanded by 1.41% since January. In addition, Industrial Production exceeded expectations last month after expanding by 4.5% from a year earlier.

Of note is the strong recovery of the trade balance, with May’s surplus widening to $105.43 billion from around $84.8 billion in the previous month and both imports and exports expanding markedly.

In the same line, business activity seems to be regaining traction after the National Bureau of Statistics (NBS) reported Manufacturing PMI at 50.3 in May (from 50) and Services at 50.2 (from 50.1). In addition, private gauges like RatinDog remained in expansionary territory in Jule, as Manufacturing came in at 51.7 and Services at 54.1.

The disinflationary trend in China seems to have re-emerged after the CPI disappointed expectations and rose by 1.2% in the year to May, matching the previous reading. On a monthly basis, prices dropped by 0.1%, while Producer Prices gained 3.9% over the last twelve months, also holding steady from April’s prints.

In the meantime, and matching the broad consensus, the People’s Bank of China (PBoC) kept its Loan Prime Rates (LPR) unchanged at 3.00% for the one-year tenor and 3.50% for the five-year tenor at its event earlier on Monday.

In summary, China is no longer pushing growth higher, but it is not dragging it down aggressively either. It is simply keeping things steady.

The RBA keeps its guard up

As broadly awaited by market participants, the Reserve Bank of Australia (RBA) left its Official Cash Rate (OCR) unchanged at 4.35% at its event early in the month. 

Indeed, the RBA adopted a hawkish stance at its latest meeting, reiterating that inflation remains too high and cautioning that more rate rises may yet be necessary if price pressures persist. Policymakers also noted continuing concerns from increased energy costs and underlined their commitment to preventing inflation from becoming entrenched.

That said, Governor Michele Bullock was a little more measured in tone at her press conference. She kept the option of additional tightening open but said the incoming data had generally progressed as expected and showed the Board did not need to tighten at this meeting. The economy is not entering a recession, and the employment market is still reasonably tight, she said.

The message in general was one of cautious tolerance. Inflation is still the bank's biggest worry, but officials seem more satisfied with the progress made so far and prepared to let past rate rises have more time to work through the economy. Further tightening is feasible, but the bar for another rate rise appears higher than the phrase alone may lead one to expect.

What's more, the RBA’s Minutes reinforced the bank’s cautious tone, with policymakers still committed to keeping policy restrictive until inflation is firmly on track to return to target.

Indeed, board members agreed that leaving interest rates unchanged offered the best balance between curbing inflation and supporting employment. They also reiterated that another rate hike is possible if price pressures prove more persistent than expected. Rate setters also pointed to the Middle East conflict, elevated Oil prices and weak productivity as key upside risks to inflation.

Even so, the board acknowledged that tighter financial conditions are gradually having the desired effect. Recent data suggest the economy is slowing broadly as expected, while the housing market has softened more than anticipated. Minutes generally reaffirm the RBA is comfortable on hold for now but still leans hawkish if inflation doesn't moderate as expected.

Still hawkish, but not hurried

Base case

While above its key 200-day SMA, just over 0.6860, the pair’s outlook is expected to remain tilted to further advances. However, for such a scenario to materialise, it needs a strong catalyst to emerge and is heavily dependent on the broader backdrop: without a sustained improvement in risk sentiment or continued US Dollar weakness, the probability of extra gains could start to lose momentum.

Bull case

Further conviction is needed. If risk appetite picks up serious pace, spot should first meet the psychological 0.7000 barrier, then the 0.7200 yardstick, before reaching the 2026 peak near 0.7280, just ahead of the minor 0.7300 barrier. Further up, the 2022 ceiling at 0.7593 is still in place. Speculative positioning seems to be leaning toward this scenario for now.

Bear case

In the current volatile context, we should not rule out the loss of further momentum. If sentiment deteriorates, the Greenback gains extra momentum, or Chinese data continue to disappoint, spot could recede further and initially challenge its critical 200-day SMA near 0.6860.

The eventual recovery appears more distant in the current context, and it seems market participants are taking notes of these developments.

Speculators continue to step back

Speculative traders continued to unwind their positioning in the Australian Dollar in the week to June 23, with net positioning dropping to -13.0K contracts from -4.1K a week earlier. The move marks a second consecutive week in net short territory and extends the sharp reversal that has unfolded since speculative longs peaked earlier this year.

The latest Commodity Futures Trading Commission (CFTC) figures suggest the dominant theme remains the steady erosion of bullish conviction rather than the emergence of an aggressive bearish consensus. Net positioning declined by another 8.9K contracts on the week, while the 4-week change now stands at -73.2K contracts, underlining the speed with which investors have reduced their exposure.

Open interest tells an equally important story: outstanding contracts fell sharply to 214.3K from 295.5K, pointing to investors leaving the market instead of adding fresh short positions. That combination of weaker positioning and declining participation continues to favour the interpretation of long liquidation rather than outright bearish positioning.

Viewed in isolation, the return to net short territory could be interpreted as a decisive shift in sentiment. However, historical positioning measures paint a more balanced picture. Indeed, despite the recent sell-off, the current net position still ranks in the 79th percentile of its 5-year range, while the speculative exposure remains in the 80th percentile.

That apparent contradiction reflects the exceptionally elevated starting point. Non-commercial accounts have unwound a substantial portion of their long exposure over the past month, but positioning has yet to move into historically depressed territory. In other words, the market has become considerably less optimistic on the Aussie, but it is not yet heavily positioned for further downside.

From a positioning perspective, this remains a market in transition. Momentum continues to deteriorate, but the adjustment appears to be driven more by investors abandoning previously crowded longs than by the conviction that the currency is entering a sustained bearish phase. Until historical positioning metrics move closer to the lower end of their 5-year range, the data suggest there is still scope for further repositioning if the macro backdrop remains unfavourable.

Eyes on the next data

In the near term, the US Dollar, global risk sentiment, and geopolitics remain the main focus. Those remain the key drivers of price action. Next on tap on the Aussie calendar will be the release of Building Permits and Private House Approvals, while the publication of Chinese inflation figures should also entertain investors.

Key risks include a sharper slowdown in China, a persistently cautious Fed, a change in investors' risk sentiment, or any shift in the RBA’s stance. Any of these could quickly destabilise the Australian currency in the near term.

Technical analysis

In the daily chart, AUD/USD trades at 0.6949, holding below the 55-day and 100-day simple moving averages (SMAs) at 0.7096 and 0.7072, which keeps the near-term bias bearish despite the pair staying above the 200-day SMA at 0.6870. The Relative Strength Index (RSI) around 42 suggests subdued momentum on the downside, while the firm Average Directional Index (ADX) near 39 hints that the prevailing downtrend remains intact rather than a mere range correction.

On the topside, initial resistance emerges at the 100-day SMA near 0.7072, followed by the horizontal barrier at 0.7079 and the 55-day SMA at 0.7096, with a stronger supply zone aligned around 0.7278/0.7283 before the distant 0.7661 cap. On the downside, immediate support is seen at the 200-day SMA around 0.6870, ahead of the horizontal level at 0.6833, with deeper floors at 0.6660 and 0.6593, while 0.6414 and 0.6373 underpin the broader medium-term structure.

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

Bottom line

The broader backdrop for the Australian Dollar remains constructive, albeit losing some momentum. In the meantime, the RBA’s cautious stance should continue to provide some degree of support on dips.

But the Australian Dollar is still a currency that trades heavily on sentiment. When confidence is strong, the Aussie performs well. When uncertainty creeps in, the Greenback tends to take over.

So while the medium-term story still leans constructive, the near-term outlook feels less certain. The move higher should be there, but conviction is not quite there…yet.