Australian Dollar Price Forecast: Minor hurdle sits around 0.6650
- AUD/USD reversed two daily advances in a row, breaking below 0.6600.
- The US Dollar kept the bid bias unchanged amid the prevailing risk-off mood.
- Australian’s Consumer Confidence receded to 92.1 in October, said Westpac.
The Australian Dollar (AUD) couldn’t keep Monday’s upbeat tone going, with AUD/USD slipping back under the key 0.6600 handle on Tuesday as sellers returned to the market.
The move lower came alongside another strong rebound in the Greenback, which pushed the US Dollar Index (DXY) to fresh two-week highs, comfortably above the 98.00 mark.
Domestic data still holding up
Despite the softer tone in markets, Australia’s economy is holding up better than expected. The final PMI readings for September eased a touch but stayed above 50, meaning activity is still expanding.
Retail sales rose a solid 1.2% in June, the August trade surplus narrowed only slightly to A$1.825 billion, and business investment kept improving through Q2. GDP grew 0.6% QoQ and 1.8% on a yearly basis, not spectacular, but steady enough.
The labour market has cooled a bit over the summer. The Unemployment Rate held at 4.2% in August, though total employment dipped by 5.4K, hardly a red flag, but a sign that momentum is softening around the edges.
RBA stays cautious
Inflation, meanwhile, is proving a little too sticky for the Reserve Bank of Australia (RBA). The August Monthly CPI Indicator (Weighted Mean) edged up to 3.0% from 2.8%, and Q2 CPI rose 0.7% QoQ and 2.1% YoY.
That was enough to keep the RBA on guard at its 30 September meeting. The cash rate stayed at 3.60%, as expected, but policymakers quietly dropped earlier hints about potential easing.
Officials warned that disinflation might be slowing after that CPI surprise and that Q3 could run hotter than their 2.6% forecast. The broader economy still looks solid too: real wages are improving, asset prices are rising, and households are feeling more confident, hardly a case for rate cuts.
Governor Michele Bullock repeated that decisions will remain data-driven and made one meeting at a time. Rate cuts aren’t off the table, but the RBA wants to see clearer signs that supply and demand pressures are really easing.
For now, the trimmed mean CPI at 2.7% YoY in Q2 sits comfortably inside the RBA’s 2%–3% target band.
So far, markets are pricing in about 15 basis points of easing by year-end and roughly 30 bps by end-2026.
China still calling the shots
Australia’s fortunes remain tightly linked to China’s patchy recovery. Q2 GDP rose a healthy 5.2% YoY, but August retail sales missed at 3.4%. September PMIs painted a mixed picture — manufacturing stayed in contraction at 49.8 while services barely held the 50.0 line. Meanwhile, August CPI fell 0.4% YoY, keeping deflation worries alive.
The People’s Bank of China (PBoC) kept its Loan Prime Rates (LPR) unchanged in September: the one-year at 3.00% and the five-year at 3.50%, as markets expected.
Traders remain unconvinced
Speculative traders aren’t exactly piling in either. With fresh Commodity Futures Trading Commission (CFTC) data still missing due to the US government shutdown, the latest available figures (week to September 23) showed limited appetite for the Aussie. Net shorts climbed to 101.6K contracts, the highest in two weeks, while open interest ticked up to 160.8K.
Technicals views
AUD/USD seems to have embarked on a consolidative range.
Indeed, further upside is seen targeting the 2025 peak at 0.6707 (September 17), ahead of the 2024 top at 0.6942 (September 30), which is closely followed by the key 0.7000 threshold.
On the flip side, initial contention emerges at the weekly base at 0.6520 (September 26), which appears bolstered by the interim 100-day Simple Moving Average (SMA). South from here, AUD/USD could attempt a move to the August floor at 0.6414 (August 21), again supported by the significant 200-day SMA. Extra losses from here should see the June valley at 0.6372 (June 23) revisited.
Momentum indicators remain mixed: the Relative Strength Index (RSI) has eased below 51, hinting at shrinking upside impulse, while the Average Directional Index (ADX) near 16 indicates that the trend lacks colour.
AUD/USD daily chart
-1759854142136-1759854142136.png&w=1536&q=95)
Still waiting for a catalyst
All told, AUD/USD is still boxed inside a broad 0.6400–0.6700 range. It’ll probably take a stronger catalyst, better Chinese data, a dovish pivot from the Fed, or a more cautious RBA, to break it out convincingly.
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.
Premium
You have reached your limit of 3 free articles for this month.
Start your subscription and get access to all our original articles.
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.
