Australian Dollar Price Forecast: Investors and the RBA now look at inflation

AUD/USD caught between support and resistance

Base case: while above the 200-day SMA past 0.6950, spot should maintain the constructive stance. Of note is that the pair is approaching the overbought zone, which carries the potential to, eventually, trigger a “technical” correction.

Against that, Australia’s relatively solid domestic fundamentals and the RBA’s cautious stance should discourage aggressive selling, while bouts of fresh demand for the US Dollar (USD) and geopolitical uncertainty should keep bulls’ impulse contained for now.

Bullish case: A convincing move beyond 0.7100, ideally supported by firm Australian data, stronger expectations of another RBA rate increase, lower US yields or a widespread improvement in risk appetite.

Under this scenario, there is a medium-term target at 0.7200 (May 29 peak), all preceding the 2026 ceiling at 0.7277 (May 6).

The sizeable build-up of speculative AUD shorts could add fuel to the move if a confirmed breakout forces bearish traders to unwind their positions.

Bearish case: A sustainable retracement to the sub-0.7000 region, amid a resurgence of USD strength or generalised weakness in market sentiment, would bring sellers back into the market, with the subsequent target emerging at the 200-day SMA.

A daily close below this area would damage the wider positive structure and increase the probability of a deeper correction.

Once that contention zone gives way, the focus of attention should shift toward the June floor at 0.6865 (June 30).

Domestic resilience keeps the Aussie supported

Australia’s domestic backdrop remains relatively healthy, supported by firm demand, positive growth and a somewhat resilient labour market.

August preliminary business surveys reinforced that picture after the Manufacturing PMI is expected to hold steady at 52.0, while the Services PMI is expected to have lost some momentum, falling to 52.9 from 53.6. Despite the mixed performance, the domestic business activity remains comfortably in expansionary territory.

The July data from the labour market were, however, discouraging: the Unemployment Rate ticked higher to nearly 5-year highs at 4.5%, while the Employment Change unexpectedly dropped by 15.8K following a revised 80.3K increase in June.

The picture remains, meanwhile, broadly positive after Australia recorded an A$1.929 billion trade surplus in June, reversing May’s A$2.367 billion deficit.

Removing some shine, economic growth slowed to 0.3% QoQ (from 0.9%) in the January-March period according to the latest Gross Domestic Product (GDP) data, while annual growth held at 2.5%.

Overall the figures suggest a resilient economy but perhaps not strong enough on its own to trigger a sustained breakout in spot.

Sticky inflation keeps the RBA on alert

Australian headline inflation eased to 3.9% in the second quarter from 4.1%. Underlying price pressures, however, remained uncomfortable, as both the Trimmed Mean and Weighted Median measures rose to 3.6% from 3.5% in the previous quarter.

Consumer inflation expectations reinforced the view of sticky prices after they ticked higher to 4.9% in August (from 4.7%), according to the Melbourne Institute. All in all, inflation remains too high for the RBA to declare victory.

Back to the RBA, it left its Official Cash Rate (OCR) unchanged at 4.35% earlier in the month, delivering another cautious message. Policymakers warned that further tightening could still be required if inflation proves more persistent than expected.

The RBA Minutes pointed in that direction, retaining a cautious but hawkish bias, with several policymakers warning that upside inflation risks could materialise and leave the Board ready to raise rates. Indeed, risks include higher oil prices, cost pass-through and the data-centre boom.

The Board debated a 25-basis-point hike but ultimately judged current policy sufficiently restrictive. With fresh inflation, labour-market and GDP data due before September, policymakers also noted balanced risks, including falling housing prices and the possibility of reducing inflation with less damage to employment.

In the meantime, market participants expect just over 4 basis points of tightening by year-end, while consensus expects the central bank to keep rates unchanged at its September 29 meeting.

China offers stability but little momentum

China remains an important influence on the Australian currency, although it is currently providing stability rather than a powerful tailwind.

The Chinese economy expanded by 4.3% YoY in the April-June period, while Industrial Production has lost some traction and rose by 4.5% in the year to June, and Retail Sales increased by a modest 0.6% over the last twelve months.

Business surveys indicate divergent activity after the National Bureau of Statistics (NBS) reported Manufacturing PMI at 49.2 in July (from 50.3) and Services at 49.0 (from 50.2), while private measures like RatingDog remain in expansionary territory, with Manufacturing at 50.9 (from 51.7) and Services at 50.4 (from 54.1).

China’s trade surplus also widened to $125.62 billion in June from $105.4 billion, supported by stronger imports and exports.

Meanwhile, the People’s Bank of China (PBoC) maintained its Loan Prime Rates (LPR) unchanged at its meeting earlier in the month, with the one-year rate at 3.00% and the five-year rate at 3.50%, widely in line with the analysts’ estimates.

China is therefore neither delivering a major boost nor creating a significant drag. Unless the data reveal a clearer acceleration or deterioration, Chinese releases may generate short-term volatility without establishing a lasting direction for the pair.

AUD shorts build, but bearish momentum eases

AUD speculative positioning strengthened in the week ending August 18. Indeed, net shorts fell to nearly 44.2K contracts, extending the negative bias, although the weekly deterioration moderated to around -4.9K contracts from just over -6K contracts.

The key signal came from participation, as open interest rose by more than 21.3K contracts to around 288.5K contracts, an increase of roughly 8%. The move looks more like a new bearish position than just a long liquidation as net shorts are increasing and open interest is higher. This suggests more conviction behind the negative AUD bias.

Furthermore, speculative exposure fell to -15.3% from -14.7%, and the 4-week change improved slightly to around -6.5K contracts from about -8.5K contracts. The Speculative Exposure Percentile was still high at 79.3, meaning bearish exposure is historically high. But the Net Position Percentile of 60.1 means positioning is not extreme yet.

What’s next for AUD?

Next on tap on the domestic calendar is the publication of the inflation readings for the month of July, seconded by the Westpac’s Leading Index and the Construction Work Done quarterly figures.

Technical landscape

On the daily chart, AUD/USD is trading at 0.7153, maintaining a bullish bias as it stays above the 55-day, 100-day, and 200-day simple moving averages (SMAs), which are clustered between about 0.6958 and 0.7074. The Relative Strength Index (14) around 66 shows strong but not extreme upside momentum, while the low-to-mid teens Average Directional Index (ADX) indicates that the advance lacks a strong trend and may consolidate above nearby support.

On the downside, initial support emerges at the horizontal level of 0.7079, reinforced by the 100-day SMA at 0.7074, with additional demand expected near the 55-day SMA at 0.7007 and the 200-day SMA around 0.6958. On the topside, immediate resistance is seen at 0.7283, ahead of the higher barrier at 0.7661, and a daily close above the former would open the way for a broader continuation of the recovery, while failure to do so could see the pair drift back toward the 0.70 handle.

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

The 200-day SMA remains the key dividing line

AUD/USD retains a constructive medium-term structure above its 200-day SMA, but the immediate outlook remains uncertain while the pair struggles to secure a foothold well above 0.7100.

The most attractive setup remains conditional: confirmed acceptance above 0.7100 would favour further gains and could trigger a positioning-driven short squeeze. Another rejection, however, would leave the pair exposed to a breach below 0.7000.

Until one of these boundaries breaks, AUD/USD remains caught between supportive Australian fundamentals and an external backdrop still dominated by the US Dollar, geopolitical uncertainty and only moderate support from China.