Australian Dollar Price Forecast: No change to the consolidative mood

The Aussie Dollar seems to have embarked on a consolidative phase, with gains in AUD/USD so far limited by the key 0.7200 region. In this scenario, the pair continues to look for a stronger catalyst to attempt another move to the area of yearly peaks. In the meantime, the AUD’s positive outlook remains unchallenged for now, reinforced by still elevated domestic inflation and the RBA’s cautious approach.

The Australian Dollar (AUD) picks up some pace and sets aside Wednesday’s marked pullback vs. the US Dollar (USD), motivating AUD/USD to revisit the 0.7150 zone on Thursday.

That said, the improved sentiment on the geopolitical front keeps weighing on the Greenback, as investors remain hopeful of a potential US-Iran agreement that ends the current conflict and leads to an eventual reopening of the Strtait of Hormuz.

A resilient economy faces growing headwinds

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 May Purchasing Managers’ Index (PMI) showed Manufacturing at 50.7 (from 51.3) and Services at 48.7 (from 50.7).

Adding some colour to the domestic fundamentals, the latest trade balance figures showed a A$1.791 billion surplus in April, reversing March’s A$1.024 billion deficit. 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 not-so-bright side, the labour market has been cooling in the last couple of months. Indeed, the Unemployment Rate ticked higher to 4.5% in April (from 4.3%), and the Employment Change dropped by 18.6K individuals (from the revised 23.3K gain seen in the prior month).

Regarding inflation, April data saw the Consumer Price Index (CPI) come in at 4.2% from a year earlier (from 4.6%), the Trimmed Mean ticking higher to 3.4% (from 3.3%), and the Weighted Median holding steady at 3.5% over the last twelve months. All in all, a real sense of disinflation remains pale, although direction appears just about right. Somehow reinforcing that view, the latest Melbourne Institute’s Consumer Inflation Expectations eased to 5.6% in May (from 5.9%).

For the RBA, that means the job is far from done, 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.

China is steadying the ship, not accelerating it

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

Let’s see some numbers: the economy expanded by 5.0% YoY in Q1, Retail Sales gained 1.9% since the beginning of the year and a meagre 0.2% in a year to April. In addition, Industrial Production disappointed expectations in last month after expanding by 4.1% from a year earlier and 5.6% YTD.

Of note is the sharp reduction of the trade surplus, which narrowed to just over $51 billion in March from nearly $214 billion previously, all in response to weaker demand dynamics.

However, business activity seems to be regaining traction after the National Bureau of Statistics (NBS) reported Manufacturing PMI at 50 in May (from 50.3), while Services returned to the expansion territory at 50.1 (from 49.4). At the same time, private gauges such as RatingDog still point to expansion, with Manufacturing coming in at 51.8 and Services improving to 54.4.

The disinflationary pressure in China has been losing steam, as the CPI rose 1.2% YoY in April, while Producer Prices jumped by 2.8% YoY, moving further away from deflation.

And what about the People’s Bank of China (PBoC)? The central bank kept the Loan Prime Rates (LPR) unchanged at 3.00% for the one-year tenor and 3.50% for the five-year tenor at its latest event, matching the broad consensus.

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

Higher for longer remains the RBA’s message

The Reserve Bank of Australia (RBA) matched expectations in early May, raising the Official Cash Rate (OCR) by 25 basis points to 4.35%, but the overall message was one of growing uncertainty.

The central bank now expects inflation to stay higher for longer, with the CPI returning to target only around 2027–2028, while growth slows and unemployment gradually rises. A big part of that shift comes from the oil shock linked to the Middle East conflict, which the RBA sees as both a drag on activity and a fresh source of inflation pressure.

Even so, policymakers do not believe demand has weakened enough yet, while businesses are increasingly expected to pass on higher costs.

The Minutes reinforced the hawkish side of the story after policymakers appeared more concerned about persistent inflation than slowing growth, with some warning inflation expectations could become de-anchored if the RBA does not remain firm enough.

Earlier on Thursday, Governor Michele Bullock and Assistant Governor Sarah Hunter largely stuck to the bank's existing narrative, suggesting the Australian economy is evolving broadly as expected.

Bullock said the latest federal budget is unlikely to have a materially different impact on demand than the RBA had already anticipated, while also downplaying the risk of a wage-price spiral.

Hunter noted that first-quarter GDP data were broadly in line with the RBA’s forecasts and reiterated that monetary policy remains somewhat restrictive.

Elsewhere, Bullock argued that the artificial intelligence boom has "supercharged" global activity, highlighting the growing role of technology in supporting economic growth.

These remarks offered little new guidance. The central bank remains comfortable with its current outlook, views policy as restrictive, and sees no major surprises from recent economic data.

In the meantime, markets expect the RBA to keep its OCR unchanged at its June 16 gathering while pencilling in nearly 25 basis points of extra tightening by year-end.

The Australian Dollar holds its ground

Base case

The pair has managed to refocus its attention to the key 0.7200 level, but it still feels heavily dependent on the broader backdrop. Without a sustained improvement in risk sentiment or continued US Dollar weakness, the move could start to lose traction.

Bull case

Further conviction is needed. If risk appetite picks up serious pace, spot could extend the uptrend and challenge the 2026 peak near 0.7280, just ahead of the minor 0.7300 barrier. Further up, the 2022 ceiling at 0.7593 awaits. Speculative positioning seems to be leaning toward this scenario.

Bear case

The loss of further momentum should not be ruled out in the current volatile context. If sentiment deteriorates, the Greenback picks up extra pace, or Chinese data keep disappointing, spot could recede further and dispute the key 0.7000 neighbourhood in the relatively short-term horizon.

The rally is there, although markets are still not fully convinced.

Positioning continues to favour the Aussie

According to the latest Commodity Futures Trading Commission (CFTC) data, speculative net longs in the Australian Dollar retreated to the lowest level since early March at nearly 60.2K contracts for the week ending May 26.

The move also came in tandem with the continuation of the move higher in open interest, which climbed to around 302.8K contracts.

It is worth recalling that speculators’ sentiment toward the Aussie shifted in late January following several years of being net short.

Despite the corrective move in the pair during that period, its prospect remains largely constructive, paving the way to further gains in the short-term horizon.

The next catalysts on the radar

In the near term, it is still all about the US Dollar, global risk sentiment, and geopolitics. Those remain the key drivers of price action. Next on tap on the Australian docket will be the Trade Balance figures for the month of April alongside speeches by the RBA’s Bullock and Kent.

Key risks include a sharper slowdown in China, a more aggressive Fed, a change of heart from investors when it comes to 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 0.7141, holding a constructive bias as it remains above the 55-day, 100-day and 200-day simple moving averages (SMAs) clustered between roughly 0.71 and 0.68. This positioning suggests dips are still being supported despite a modest loss of momentum, with the Relative Strength Index hovering near the neutral 50 line and the Average Directional Index below 20, hinting at a relatively weak but intact uptrend.

On the downside, initial support is seen at the nearby horizontal level around 0.7079, reinforced by the 55-day SMA just underneath, with the 100-day SMA and the 0.6833 horizontal line providing a deeper support zone ahead of 0.6660. On the topside, immediate resistance emerges at 0.7278, closely followed by 0.7283 as a tight supply band, while a more distant barrier stands at 0.7661, where a break would be needed to revive a stronger bullish extension.

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

Supportive fundamentals, uncertain momentum

The broader backdrop for the Australian Dollar remains supportive, and the RBA’s stance should continue to provide a degree of support on dips.

But this 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 is there, but conviction is not quite there yet.