Australian Dollar Price Forecast: Outlook remains constructive
- AUD/USD adds to Monday’s strong advance, surpassing the 0.7100 barrier.
- The US Dollar remains on the back foot amid steady geopolitical concerns.
- The RBA delivered a split hike, raising the OCR by 25 bps to 4.10%, as expected.
The Australian Dollar (AUD) remains firm, with domestic inflation still elevated and the Reserve Bank of Australia (RBA) keeping its cautious/hawkish stance well in place. This combination keeps the door open for AUD/USD to advance further, putting a floor at the same time to occasional bearish moves.
Further improvement in the risk-associated space kept the Australian Dollar well bid in the first half of the week, with AUD/USD now managing to break above the key 0.7100 hurdle to hit fresh three-day peaks.
The continuation of the recovery in the pair comes in response to another poor daily performance of the US Dollar (USD), despite tensions in the Middle East remaining far from abated.
Australia: steady, but not softening enough
Australia’s macro backdrop continues to provide a solid floor for the Australian Dollar (AUD).
Growth remains resilient, inflation is still proving sticky, and the RBA retains a clearly hawkish bias. For FX markets, that combination continues to act as a meaningful cushion under the Aussie.
Recent data only reinforce that narrative after February’s final Purchasing Managers' Index (PMI) readings showed manufacturing at 51.0 and services at 52.2, both comfortably in expansion territory and consistent with an economy that is still ticking along at a steady pace.
Consumer activity is also holding up better than expected. Retail spending remains resilient, while the trade balance continues to support the backdrop, with the surplus reaching A$2.631 billion in January.
At a broader level, momentum remains firm: the Gross Domestic Product (GDP) expanded by 0.8% QoQ in the October–December quarter and 2.6% YoY, comfortably above the RBA’s estimates.
The labour market is easing, but only gradually. On this, the Employment Change increased by 17.8K in January, while the Unemployment Rate held steady at 4.1%. In other words, the cooling process remains orderly rather than abrupt.
Inflation, however, is proving more stubborn. Data from January saw the headline Consumer Price Index (CPI) come in at 3.8% YoY, slightly above expectations, while the Trimmed Mean measure edged up to 3.4% YoY. Disinflation is still in place, but the pace remains frustratingly slow.
From the RBA’s perspective, the job is far from done. The central bank continues to see inflation peaking around Q2 2026 before gradually returning toward the midpoint of the 2–3% target band by mid-2028.
Inflation expectations are also showing persistence, with the Melbourne Institute’s Consumer Inflation Expectations survey rising to 5.2% in March from 5.0% previously.
China: stabiliser, not a catalyst
China’s role in the Australian outlook has clearly shifted.
Rather than acting as a strong engine of global growth, the Chinese economy now looks more like a stabilising force.
The most recent data shows a 4.5% expansion in the economy during Q4 of 2025, while Retail Sales also expanded at an annualised 2.8% in the January–February period. Furthermore, trade figures are holding steady, with a surplus of $213.62 billion. This is bolstered by a 21.8% rise in exports and a 19.8% increase in imports.
Yet, business surveys paint a more complex picture. The National Bureau of Statistics (NBS) reported that the official Purchasing Managers' Index (PMI) figures for February remained in contraction territory. Manufacturing registered at 49.0, while services were at 49.5.
Private surveys offer a stronger signal. RatingDog indicators stayed firmly in expansion, with manufacturing at 52.1 and services at 56.7.
Inflation pressures remain subdued. The Consumer Price Index (CPI) rose just 0.2% YoY, while the Producer Price Index (PPI) stayed in deflation at -1.4% YoY.
Meanwhile, the People’s Bank of China (PBoC) left the one-year and five-year Loan Prime Rate (LPR) unchanged at 3.00% and 3.50% in late February.
For the AUD, the message is fairly clear. China is no longer a drag, but neither is it providing a strong tailwind.
RBA: restrictive stance remains intact
The RBA voted 5–4 to hike its Official Cash Rate (OCR) to 4.10% earlier on Tuesday.
The RBA statement repeated that there would be further capacity problems because of too much demand in the second half of 2025. This was in response to the fact that GDP growth in the fourth quarter was higher than expected, at the same time hinting at rising oil prices, which would contribute to headline inflation if they stayed high. The statement also mentioned upside risks to inflation and inflation expectations.
In her press conference, Governor Michele Bullock said that today's rate hike was mostly due to excess demand. However, the oil price shock does make the RBA's work tougher by raising headline inflation in the short term. The key argument among board members was when to raise rates, not which way they should go. Those who voted to keep rates the same wanted more time to monitor how events outside the boardroom affect the economy and how higher oil prices would affect global economic growth if they remain high for a longer period of time.
Markets are now leaning toward a pause in May, while still pricing in around 43 basis points of additional tightening by year-end.
Positioning: bullish bias softens but is not broken
Latest Commodity Futures Trading Commission (CFTC) data show that speculative positioning in the AUD softened in the week to March 10.
That said, non-commercial traders (speculators) trimmed their net long exposure to around 54.2K contracts, signalling a clear reduction in bullish bets.
At the same time, open interest rose to nearly 316K contracts, pointing to increased market participation.
This combination suggests repositioning rather than outright liquidation. Some investors are scaling back longs, but new positions are also entering the market.
Importantly, the overall structure remains net long AUD, meaning the broader bias is still constructive.
AUD/USD: still a global story
Near term: AUD/USD should continue to swing around US Dollar dynamics and the broader risk sentiment. On the domestic front, the Westpac Leading Index is the next data point to watch.
Risks: the AUD tends to underperform when global risk appetite deteriorates, when China slows, or when the US Dollar strengthens unexpectedly. The outlook, therefore, remains cautiously constructive but clearly conditional.
Technical scenario
In the daily chart, AUD/USD trades at 0.7098. The near-term bias stays mildly bullish as spot holds well above the rising 55-, 100- and 200-day Simple Moving Averages (SMAs), which cluster between 0.6650 and 0.6950 and frame a well-defined medium-term uptrend. Price trades above the 23.6% Fibonacci retracement at 0.6976, measured from the 0.6421 low to the 0.7147 high, indicating that recent downside has been a shallow pullback within the broader advance. The Relative Strength Index (RSI) at 54.77 remains above the 50 line, aligning with persistent but moderate buying pressure, while the Average Directional Index (ADX) has eased toward 23, signalling a waning but still directional trend rather than an impulsive breakout phase.
Initial resistance is located at the recent horizontal cap near 0.7158, with the prior swing high and 0.0% Fibonacci level at 0.7147 reinforcing this barrier, followed by 0.7283 and then 0.7661 if bulls extend control. On the downside, immediate support emerges at the 23.6% retracement at 0.6976, ahead of the charted horizontal floor at 0.6897, which guards the more important confluence of supports around the 38.2% retracement at 0.6870. A daily close below 0.6897 would expose the 0.6660 and 0.6593 supports near the rising longer-term SMAs and would weaken the current bullish bias, while sustained prices above 0.6976 keep buyers in charge and maintain focus on a retest of 0.7158.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: supported, but not immune
Australia’s solid domestic backdrop and a still-restrictive RBA continue to underpin the AUD.
That said, the currency remains highly exposed to global risk dynamics. When sentiment holds, the Aussie performs. When volatility rises, the US Dollar tends to regain the upper hand.
For now, the trend remains supportive, but far from unconditional.
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.
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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.
