Australian Dollar Price Forecast: Potential for some near-term consolidation
- AUD/USD reverses two days in a row of gains and recedes toward 0.7050.
- The US Dollar further extends its weekly recovery ahead of the FOMC Minutes.
- The Australian jobs report will be the salient event on the docket on Thursday.
The Australian Dollar (AUD) is still holding up well, and for now the broader tone remains constructive. The Reserve Bank of Australia (RBA) has struck a cautious but clearly hawkish note, and with inflation proving sticky and domestic fundamentals holding up reasonably well, spot continues to hover near the top of its multi-year range.
The Australian Dollar is back under a bit of pressure on Wednesday, with AUD/USD giving up the gains from the past couple of sessions and drifting back towards the 0.7050 area.
What’s really driving the move is a subtle change in mood. Indeed, investors are sounding a bit more cautious; the US Dollar (USD) is holding its ground ahead of the FOMC Minutes, and that’s enough to tilt the balance. As demand for the Greenback builds and traders ease back on risk, the Aussie is starting to feel the strain and is once again drifting onto the defensive.
Australia: cooling, but still holding firm
Australia’s economy is cooling, but it is not cracking. The latest data suggest momentum has softened rather than collapsed, keeping the soft landing narrative broadly intact.
On that, the January Purchasing Managers’ Index (PMI) surveys reinforce that message after Manufacturing printed at 52.3 and Services at 56.3, both comfortably in expansion. In addition, Retail Sales are holding up, the trade surplus widened to A$3.373 billion at the end of 2025, and the Gross Domestic Product (GDP) showed the economy expanded 0.4% QoQ in Q3, taking annual growth to 2.1%, broadly in line with RBA projections.
The labour market remains a standout: Employment Change surged by 65.2K in December, and the Unemployment Rate edged down to 4.1%. Attention now turns to the January jobs report later this week, which will be key in testing whether that strength is sustained.
Inflation, however, remains the tricky part. That said, the Consumer Price Index (CPI) rose 3.8% YoY in December. The trimmed mean came in at 3.3% YoY and 3.4% QoQ in Q4, still uncomfortably above the midpoint of the target range. In the same vein, the Consumer Inflation Expectations survey measured by the Melbourne Institute climbed to 5.0% in February, the highest since August 2023. That will not go unnoticed at the central bank.
Credit growth also suggests financial conditions are not overly restrictive after Home Loans rose 10.6% QoQ in Q4 and Investment Lending increased 7.9%, pointing to ongoing resilience in the housing sector.
China: steady tailwind, limited firepower
China continues to provide a steady backdrop for the Aussie, though not a powerful catalyst. Latest data saw the economy expand 4.5% YoY in Q4 and 1.2% QoQ, while Retail Sales rose 0.9% YoY in December.
In a more mixed tone, the January PMI readings saw the official Manufacturing and Non-Manufacturing gauges slip into contraction at 49.3 and 49.4, respectively, while Caixin Manufacturing and Services held firmer at 50.3 and 52.3. The trade surplus widened sharply to $114.1 billion in December, but inflation remains subdued, with the CPI at 0.2% YoY and Producer Prices down 1.4% YoY.
Back to monetary policy, the People’s Bank of China (PBoC) left the one-year and five-year Loan Prime Rates (LPR) unchanged at 3.00% and 3.50%, signalling a steady, supportive stance rather than an aggressive easing push. A similar outcome is expected at the February 20 meeting.
RBA: restrictive, cautious and data-driven
The RBA lifted the Official Cash Rate (OCR) to 3.85% earlier in February, with a clear hawkish lean. Updated projections show inflation staying above the 2%-3% target band for much of the forecast horizon, justifying a restrictive policy stance.
The Minutes released on Tuesday made clear that, without the latest hike, inflation would likely have remained above target for too long. Against that, policymakers judged that risks had shifted materially, strengthening the case to tighten. They added that there is no pre-commitment to further moves, and the path from here remains firmly data dependent.
Markets are pricing in just over 34 basis points of additional tightening this year, which continues to offer the Australian Dollar a degree of underlying support.
Positioning: constructive, not crowded
Commodity Futures Trading Commission (CFTC) data show speculators (non-commercial traders) increased net longs to around 33.2K contracts in the week to February 10, the strongest since December 2017. This looks more like fresh positioning being rebuilt than simple short covering.
Open interest eased to roughly 247.2K contracts, suggesting conviction is improving but participation is not yet broad-based. Positioning appears constructive, though far from stretched.
Investors seem to be cautiously re-engaging with the Aussie. The trade is not crowded, and positioning leaves room for further upside if sentiment holds up.
What’s next
Near term: The US Dollar still sets the tone. Incoming US data, tariff headlines and geopolitical developments can easily sway AUD/USD. On the domestic front, the labour market report and the advance PMI readings will offer important reality checks on the strength of the economy.
Risks: The AUD is a classic high-beta currency, tightly linked to global risk appetite. A deterioration in sentiment, renewed China concerns or a stronger US Dollar could quickly unwind recent gains. In that case, the bullish narrative would need reassessing rather than being extended by default.
Technical scenario
In the daily chart, AUD/USD trades at 0.7058. The 55-, 100- and 200-day Simple Moving Averages (SMAs) advance in a bullish alignment, with the 55-day above the longer measures and price holding above all three. This configuration reinforces a pro-uptrend bias. The Relative Strength Index (14) stands at 62, showing firm positive momentum without overbought conditions.
Measured from the 0.6421 low to the 0.7147 high, the 23.6% Fibonacci retracement at 0.6976 offers nearby support, with additional support at 0.6897. Immediate resistance aligns at 0.7158, followed by 0.7283. A daily close above 0.7158 would open the topside toward 0.7283, while a break beneath 0.6976 could see a pullback toward 0.6897.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: constructive bias, but not on autopilot
A resilient macro backdrop, a still-restrictive RBA, improving positioning and steady support from China keep the broader bias in the pair tilted to the upside. As long as global risk appetite holds up and the Greenback does not regain strong momentum, dips are more likely to attract buyers than signal a deeper reversal.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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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.
