Australian Dollar Price Forecast: (Not) all the roads lead to 0.7000

The Australian Dollar (AUD) has rapidly regained composure on Wednesday, prompting AUD/USD to trade with decent gains and come close to the key 0.7000 threshold, although a test of it remains elusive for now.

The resumption of the upward trend in the pair comes in tandem with a marked pullback in the US Dollar (USD) amid a generalised improvement in sentiment surrounding the broader risk-linked galaxy.

Adding to the above, tensions in the Middle East appear somewhat (temporarily?) alleviated, while the recovery in crude oil prices seems far from abated.

Looking at the broader picture, spot remains vulnerable to further losses as long as it continues to trade below its 200-day SMA near 0.7040. However, the Reserve Bank of Australia’s (RBA) hawkish policy stance, in combination with still elevated domestic inflation, should cushion against any deep and sustained corrections…for now.

Australia’s resilience meets signs of slowing momentum

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 final data showed the Purchasing Managers’ Index (PMI) for Manufacturing cooling to 49.6 in September and easing to 51.9 when it comes to Services, from 52.0 and 53.2, respectively.

Trade data provided another positive, albeit humble, signal after August’s trade surplus came in at just A$0.495 billion, adding to the A$1.351 billion surplus registered in the previous month (revised from A$1.923 billion).

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 ticking higher to 4.0% from a year earlier.

The Melbourne Institute’s Consumer Inflation Expectations measure reinforced those figures after ticking higher to 5.3% in October.

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 offers stability, but little fuel for the Aussie

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 last month, 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 hikes again as inflation refuses to cooperate

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

The RBA Minutes published earlier on Tuesday show a unanimous vote for more tightening. Indeed, all Board members voted for the 25 basis point rate hike, believing that excess demand was stronger than previously assumed and that the risk of persistently high inflation had increased. Furthermore, policymakers debated whether to hold rates for a moment but decided to take timely action to keep inflation expectations anchored.

Additionally, the RBA highlighted broad domestic cost pressures, higher unit labour costs, elevated oil prices and emerging inflation risks from the AI boom. Some indicators suggested financial conditions were only modestly restrictive, while models implied the neutral rate may have moved higher. The Board also warned that a rise in global neutral rates could weaken the Australian Dollar if domestic rates failed to follow.

Overall, the Minutes were clearly hawkish and leave further tightening firmly on the table, although policymakers remain mindful of falling house prices and the risk of slowing economic activity.

AUD/USD recovery runs into the 200-day SMA

Baseline outlook

The medium-term outlook has somewhat improved since the beginning of the month, as the pair seems to have embarked on a sidelined phase. While below the 200-day SMA, spot should face a steady chance of further declines. Against this backdrop, the resurgence of the downside bias should find initial support at the October floor at 0.6903 (October 1).

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 key 0.7000 threshold, just ahead of the 200-day SMA, all preceding 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 October valley of 0.6903 (October 1). A breach below the latter would increase the likelihood of a retest of the June bottom near 0.6860 (June 30).

Positioning turns decisively bearish

AUD bearish positioning accelerated sharply in the week ending October 6, according to the Commodity Futures Trading Commission (CFTC) data. That said, the net speculative positioning increased to nearly 98.6K contracts, extending the previous week’s deterioration. The four-week change accelerated to just over 63.7K contracts, confirming a powerful and rapidly intensifying bearish trend.

Additionally, open interest increased markedly to around 328.7K contracts. The move suggests that new shorts are being established as net shorts deepen along with higher participation, rather than a simple liquidation of existing longs. This suggests that conviction behind the negative AUD view has increased materially.

Further data showed speculative exposure fell to -30%, although its percentile declined to 47.1, indicating that exposure relative to open interest is not historically extreme. The Net Position Percentile, however, collapsed to 1.9 from 33.7, showing that the outright net-short position is now exceptionally bearish by historical standards.

All up, the AUD positioning signal has turned decisively negative with both weekly and four-week momentum pointing lower. Further downside remains possible while fresh shorts continue to accumulate, although the extremely low Net Position Percentile also raises the risk of a sharp short-covering rebound if the macro backdrop improves or bearish momentum begins to fade.

What’s next for AUD/USD?

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

In the meantime, the next data release note on the domestic calendar will be the publication of the Leading Index tracked by Westpac. However, the release of US CPI data and Chinese inflation figures alongside Balance of Trade results is also expected to be closely monitored.

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 analysis

In the daily chart, AUD/USD trades at 0.6979, keeping a bearish near-term tone as spot holds below the 200-day and 100-day simple moving averages (SMAs) at 0.7040 and 0.7045, as well as the 55-day SMA at 0.7080. The Relative Strength Index (14) sits around 41, hinting at lingering downside pressure, while the elevated Average Directional Index (14) near 41 suggests the current downtrend remains relatively robust.

On the topside, initial resistance is clustered around the 200-day and 100-day SMAs between 0.7040 and 0.7045, ahead of the horizontal barrier at 0.7079 and the 55-day SMA at 0.7080. Further up, a heavier supply zone emerges at 0.7278/0.7283, with a major resistance level at 0.7661. On the downside, immediate support is seen at the horizontal line near 0.6833, followed by deeper floors at 0.6660 and 0.6593, while 0.6414 and 0.6373 mark more distant structural supports if selling pressure extends.

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

Domestic support, external pressure: AUD caught in the middle 

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.