Australian Dollar Price Forecast: Near-term outlook shifts to bearish

The Australian Dollar (AUD) has weakened further on Wednesday, motivating AUD/USD to further extend its recent breakdown of its critical 200-day SMA to hit new two-month troughs in the mid-.6900s.

The pair’s continuation of the downtrend comes amid the lack of clear direction in the US Dollar (USD), although disheartening prints from domestic inflation figures appear to be the main source of the marked decline in spot.

Following the September tops near 0.7250, the pair has already surrendered around 3 cents, mostly on the back of dynamics surrounding the Greenback and recent evidence of some loss of impulse in Australian inflationary pressures.

That said, the door now appears wide open for extra losses in the wake of the loss of the 200-day SMA, although the Reserve Bank of Australia’s (RBA) hawkish policy bias could prevent spot from attempting a much deeper pullback.

Australia’s economy is slowing but remains on solid footing

Australia’s economy continues to compare favourably with many of its G10 peers, supported by domestic demand and positive economic growth. Persistent inflation also supports the RBA’s cautious, data-dependent policy stance.

However, business activity seems to have lost some momentum after preliminary data showed the Purchasing Managers’ Index (PMI) for Manufacturing cooling to 49.3 in September and easing to 51.4 when it comes to Services, from 52.0 and 53.2, respectively.

Trade data provided another positive signal: Australia recorded an A$1.923 billion surplus in July, adding to the A$2.341 billion surplus registered in June.

Growth figures were less encouraging, however. Indeed, the Gross Domestic Product (GDP) expanded by 0.4% QoQ in the second quarter of 2026, up from 0.3%, while annual growth came in at 2.1%, down from the previous 2.5% yearly expansion.

The labour market also showed mixed signs in August, with the Unemployment Rate rising to 4.6% and Employment Change increasing by 39.5K, reversing July’s nearly 16K drop.

Inflation seems to have lost some impulse after the most-watched Trimmed Mean came in at 3.6% over the last twelve months, despite the headline CPI ticked higher to 4.0% from a year earlier.

The Melbourne Institute’s Consumer Inflation Expectations measure reinforced those figures after holding steady at 4.9% in September.

The figures leave the RBA’s inflation task incomplete. Policymakers expect inflation to return to target only in early 2028, keeping the emphasis on patience rather than an imminent policy pivot.

China is stabilising, but not driving the Aussie higher

China is providing stability for the Australian economy, but not the growth impulse that has supported the Australian Dollar during previous expansions.

The Chinese economy grew by 4.3% YoY in the April-June period, while Industrial Production growth regained traction, expanding by 5.2% YTD, and the trade surplus widened to $119.1 billion in July, supported by decent increases in both imports and exports. However, on the downside, consumer spending remained sluggish after Retail Sales rose by only 0.4 % from a year earlier.

In addition, business surveys presented a promising picture: the National Bureau of Statistics reported that the Manufacturing PMI improved to 50.1 in September (from 49.8), while the Services PMI improved to 50.2  (from 49.0). In the same direction, private measures like RatingDog remained in expansionary territory, with Manufacturing at 52.1 (from 51.5) and Services at 51.6 (from 51.4).

Disinflationary pressures seem to have taken a breather in August, with the CPI gaining 0.8% YoY, up from 0.5%, while prices rose by 0.4% on a monthly basis. Producer Prices rose by 3.8% over the previous twelve months, down from the 3.5% increase recorded in the previous month.

The People’s Bank of China (PBoC) left its Loan Prime Rates unchanged early on Monday, maintaining the one-year rate at 3.00% and the five-year rate at 3.50%.

China is therefore neither providing a major boost nor creating a significant drag. Unless the data reveal a clearer acceleration or deterioration, its influence on AUD/USD is likely to remain limited.

The RBA walked the talk… now what?

In a unanimous decision, the RBA hiked its OCR by 25 basis points to 4.60% at its meeting on Tuesday.

The statement said the Middle East conflict had pushed global energy prices well above the assumptions in its August forecasts, while inflation had proved stronger than expected, and short-term inflation expectations remained elevated. Although policy has been tightening since the start of the year had slowed the economy, the Board judged that further restraint was needed to return inflation to its target within a reasonable timeframe.

At her press conference, Governor Michele Bullock said domestic capacity pressures remained the main driver of inflation and warned that a prolonged Middle East conflict could lead businesses to pass higher costs on to consumers. While financial conditions were already restrictive, the Board concluded that another rate increase was warranted, stressing that policy would continue to tighten in a measured way.

Bullock added that policymakers would need to see quarterly core inflation slow to around 0.6% before they could gain greater confidence that inflation was moving back towards its goal.

Conclusion

The RBA delivered a hawkish hike, reflecting a deterioration in the inflation outlook driven by persistent domestic price pressures, elevated inflation expectations and higher energy costs. While further tightening remains possible, future decisions will continue to depend on incoming inflation data.

AUD/USD needs to reclaim 0.7200 to regain momentum

Baseline outlook

The medium-term outlook has deteriorated in the last few weeks, as the pair remains unable to regain upside traction in a sustained manner. While below the 200-day SMA (0.7026), the pair should face an increasing chance of further losses. Against this backdrop, the continuation of the current sell-off could extend toward the June floor near 0.6860 (June 30).

Of note, the daily Relative Strength Index (RSI) has entered the oversold zone, which could carry the potential to spark some “technical” correction eventually.

The resumption of the bullish bias will likely require a strong catalyst, namely a sustained improvement in risk appetite trends or renewed and persistent US Dollar weakness.

Upside scenario

A stronger risk-on environment should face the initial barrier at the 200-day SMA, prior to the weekly top at 0.7140 (September 21). North from here, a test of the 2026 high near 0.7280 should come into view.

Downside scenario

An additional deterioration in global risk sentiment, persistent strength in the Greenback, or renewed weakness in Chinese data could further fuel the ongoing selling mood.

Initial support is at the September floor of 0.6947 (September 30). A breach below the latter would increase the likelihood of a retest of the weekly low at 0.6922 (July 29) ahead of the June base.

Bears regain the upper hand

The latest Commodity Futures Trading Commission (CFTC) data suggest that non-commercial investors re-established bearish exposure toward the Aussie, reversing part of the short-covering seen over recent weeks. While positioning remains far from the extreme bearish levels reached earlier in the year, the latest report indicates growing caution toward the currency.

That said, speculators increased their net shorts to nearly 46.7K contracts, the largest in several weeks. The move marks a clear acceleration from the previous week's increase in shorts and suggests that investors have become more cautious towards the AUD following the recent stabilisation in positioning.

The sharp fall in speculative exposure to -15.3% reinforces that view. The decline reflects a much larger share of speculative positions being tilted to the short side, indicating that bearish conviction strengthened materially during the reporting week.

While the deterioration is stark, positioning indicators suggest sentiment has moved back into bearish territory but not to historical extremes.

The Speculative Exposure Percentile is 77.7, which means that the strength of the speculative bearishness is greater than that observed in about 3/4 of the observations. Meanwhile, the Net Position Percentile sits at 54.4, close to the middle of its historical range, suggesting that although shorts have increased, outright positioning remains relatively balanced compared with previous cycles.

This combination suggests investors have turned more negative on the AUD, but there is room for positioning to become materially more bearish if macro conditions deteriorate.

Also, medium-term momentum turns negative as the 4-week change moved back into negative territory at just over 2.3K contracts, reversing last week’s positive reading. This suggests that the broader trend has once again turned toward rebuilding short exposure rather than covering existing bearish positions.

One week’s worth of data does not indicate a new trend, but further increases in brief positioning would indicate that speculative sentiment is turning more bearish on the Australian currency.

Takeaway

This week's report points to a renewed bearish shift in speculators’ sentiment toward the Australian Dollar. Investors added fresh short positions, speculative exposure weakened significantly, and the 4-week trend slipped back into negative territory.

While positioning remains well short of historical extremes, the latest data suggest that market participants are becoming increasingly cautious on the AUD. Unless incoming domestic data or an improvement in global risk sentiment alters the macro backdrop, speculative flows may continue to favour the downside in the weeks ahead.

What could move AUD/USD next?

US Dollar dynamics, global risk sentiment, and geopolitical developments remain the main near-term drivers of AUD/USD.

In the meantime, next of note on the domestic calendar will be the release of Trade Balance results in August.

Beyond the immediate releases, the main risks include a sharper slowdown in China, a persistently cautious Fed, a deterioration in investor risk appetite or a change in the RBA’s current policy stance. Any of these developments could quickly alter the outlook for the Australian Dollar.

Technical landscape

In the daily chart, AUD/USD trades at 0.6950, keeping a bearish near-term tone as spot holds below the 100-day, 200-day and 55-day simple moving averages (SMAs) clustered between 0.7028 and 0.7083. The Relative Strength Index (14) at 27 signals oversold conditions, while the Average Directional Index (14) around 34 suggests a moderately strengthened downtrend, hinting that while selling pressure dominates, the pair could be vulnerable to corrective bounces before any sustained recovery through the overhead averages.

On the topside, initial resistance emerges at the 200-day SMA near 0.7028, followed by the 100-day SMA around 0.7063 and the horizontal barrier at 0.7079, with the 55-day SMA at 0.7083 reinforcing this cap before higher resistance at 0.7278/0.7283 and the more distant 0.7661 level. On the downside, immediate support is seen at the horizontal line around 0.6833, ahead of deeper floors at 0.6660 and 0.6593, with 0.6414 and 0.6373 coming into focus on a continuation of the broader decline.

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

External headwinds continue to cap upside

Some dark clouds continue to hover around the AUD’s near-term outlook.

Australia’s domestic backdrop compares favourably with that of many advanced economies, and the RBA is in no hurry to abandon its hawkish stance. These factors should somewhat contain the bearish impulse.

The recovery nevertheless remains vulnerable to renewed strength in the Greenback, persistent geopolitical uncertainty and a Chinese economy that is stabilising rather than accelerating.

The 200-day SMA remains the key level for the medium-term outlook. Holding above it preserves the constructive structure, but a convincing break above 0.7200 is necessary to further extend the bull run.

However, such a move would require the resumption of the downward trend in the Greenback, stronger demand for risk-sensitive assets, additional cooling in US inflation, or a (less likely) dovish shift from the Fed.

Until then, external forces are likely to exert more influence over the Australian Dollar than domestic fundamentals.