Australian Dollar Price Forecast: Near-term outlook appears constructive
- AUD/USD extends its uptrend north of the 0.6500 hurdle on Wednesday.
- The US Dollar keeps its bearish performance despite firm US data releases.
- Australian inflation remains hot and supports the RBA’s cautious stance.
The Australian Dollar (AUD) accelerates its uptrend midweek, lifting AUD/USD to new multi-day highs past 0.6500 the figure and at the same time putting further distance from its critical 200-day SMA.
The pair’s fourth consecutive daily advance remains accompanied by further weakness in the US Dollar (USD) despite firmer-than-expected results from the US calendar, although bets for further rate cuts by the Federal Reserve continue to weigh on the sentiment.
Australia: Slow and steady, and that’s just fine
Australia’s not setting any growth records, but it’s clearly moving in the right direction. The early November PMIs showed things ticking along: Manufacturing moved back into expansion at 51.6 (up from 49.7), and Services edged a little higher to 52.7 (from 52.5).
Retail Sales were also respectable with a 4.3% YoY increase in September, while the trade surplus widened to A$3.938 billion. Business Investment improved in Q2, helping GDP rise 0.6% QoQ and 1.1% YoY. Nothing too flashy, but certainly stable.
The jobs market chipped in with a bit of good news too after October’s Unemployment Rate eased to 4.3%, and Employment Change jumped by +42.2K, suggesting the earlier softness might be fading.
Inflation, however, is proving sticky. October CPI came in hotter than expected, backing the RBA’s view that rates need to stay put for now. Headline CPI hit 3.8% YoY, the highest in 17 months, with housing, food and non-alcoholic drinks, plus recreation and culture leading the gains.
Furthermore, the trimmed mean CPI, which the RBA pays most attention to, also surprised higher at 3.3% YoY vs the 3.0% expected. For reference, the RBA is forecasting headline at 3.3% and trimmed mean at 3.2% by year-end.
Worth noting: This was the first full monthly inflation print since the Australian Bureau of Statistics (ABS) officially stepped away from quarterly-only CPI reporting.
China: Helping the outlook, but not driving it
China remains a key influence for Australia, but its recovery still isn’t firing on all cylinders.
GDP grew 4.0% YoY in Q3 and Retail Sales rose 2.9% YoY in October. But momentum softened elsewhere: the RatingDog Manufacturing PMI eased to 50.6, Services slipped to 52.6, and Industrial Production missed at 4.9% YoY.
Trade wasn’t much better, with the surplus narrowing from $103.33 billion to $90.45 billion in September.
Inflation was a rare bright spot, as the headline CPI finally moved positive at 0.2% YoY, helped by Golden Week demand, while the core CPI ticked up to 1.2%.
In addition, and as expected, the PBoC left its Loan Prime Rates unchanged: 3.00% on the one-year and 3.50% on the five-year.
RBA: Playing it cool and keeping options open
The RBA held the cash rate at 3.60% in early November; no surprise there. Officials weren’t in a hurry to tighten further, but they’re not entertaining rate-cut hopes just yet either.
Inflation is still too sticky, the labour market too tight, and Governor Michele Bullock made clear that policy already sits “pretty close to neutral”; it just needs time to bite.
Plus, the 75 basis points of cuts already delivered haven’t fully worked their way through the economy yet. The RBA wants more convincing evidence that demand is cooling before shifting gears.
Markets get the message: they’re pricing almost a 96% chance of no change on December 9, and only a little over 7 basis points of hikes through end-2026 vs. nearly 90 basis points of easing expected from the Federal Reserve (Fed).
The November Minutes summed it up neatly: Stronger demand, sticky inflation, and still-restrictive policy argue for patience, but softer jobs or weaker household spending could tilt things toward cuts.
Technical levels to watch
AUD/USD is showing strong signs of life so far this week, managing to regain balance and reclaim the key 0.6500 hurdle.
The continuation of the current recovery should initially target the provisional 100-day and 55-day SMAs at 0.6532 and 0.6544, respectively, ahead of the November top at 0.6580 (November 13). Up from here comes the October peak of 0.6629 (October 1), seconded by the 2025 ceiling of 0.6707 (September 17).
On the flip side, the loss of the key 200-day SMA at 0.6461 could open the door to a deeper pullback to the November low at 0.6421 (November 21), before the October floor at 0.6440 (October 14) and the August trough at 0.6414 (August 21), while a move further south exposes the June valley of 0.6372 (June 23).
Reinforcing the rebound, momentum indicators see the Relative Strength Index (RSI) climbing past the 51 level, while the Average Directional Index (ADX) loses some impetus and recedes to around 13, signalling a trend that lacks muscle.
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Outlook: Supportive-ish, but risks still loom
AUD/USD still feels a bit fragile. A clear break below 0.6400 could set off a deeper slide. China’s uneven recovery isn’t helping sentiment, and broader trade uncertainty continues to cast a shadow.
But the RBA’s measured stance, gradually improving signals from China and a softer USD backdrop are offering enough support to keep the Aussie from rolling over. Any upside, though, is likely to be a grind rather than a sprint.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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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.
