Australian Dollar Price Forecast: Rangebound now, breakout later?
- AUD/USD added to recent gains and clinched new YTD peaks past 0.6630.
- The US Dollar retreated modestly following poor PPI and Fed rate cut bets.
- Chinese deflationary pressure remained well in place in August.
The Australian Dollar (AUD) found its footing on Wednesday, erasing Tuesday’s dip and pushing AUD/USD above the 0.6600 line in convincing fashion, its best level of the year so far.
The move came as the US Dollar (USD) lost momentum. That said, the US Dollar Index (DXY) stayed heavy around the 97.60–97.70 band, weighed down by falling US yields. At the same time, weaker-than-expected US Producer Prices kept alive the idea of another Federal Reserve (Fed) rate cut at the September 16–17 meeting, with traders now eyeing Thursday’s all-important US CPI release.
Sticky inflation keeps pressure on the RBA
Inflation in Australia remains stubborn. July’s Monthly Consumer Price Index (Weighted Mean) picked up to 2.8% from 1.9% in June, while Q2 CPI rose 0.7% QoQ and 2.1% over the last twelve months. That stickiness explains the Reserve Bank of Australia’s (RBA) cautious approach, with policymakers reluctant to ease too aggressively.
Economy proves more resilient than feared
Australia’s growth story still has some muscle. August’s final Manufacturing PMI came in at 53.0 and Services at 55.8, both safely in expansion. Retail sales rose 1.2% in June, while the July trade surplus widened to A$7.3 billion.
The labour market is holding up too. Unemployment edged down to 4.2% as payrolls added 24.5K jobs. Private capital expenditure ticked up 0.2% in Q2, while GDP surprised to the upside with 0.6% growth on the quarter and 1.8% on an annualised basis.
RBA sticking with data-driven approach
Earlier this month, the RBA cut rates by 25 basis points to 3.60% and trimmed its 2025 growth outlook. Governor Michele Bullock pushed back against calls for deeper easing, stressing that policy will remain firmly data-dependent.
Minutes from the last meeting suggested quicker cuts are possible if the labour market deteriorates, but a slower pace is more likely if the economy holds up. For now, markets expect the Official Cash Rate (OCR) to stay unchanged on September 30, with about 30 basis points of easing still priced in for year-end.
China’s recovery remains the wild card
Australia’s fortunes are closely tied to China. Q2 GDP grew 5.2% from a year earlier, with industrial output up 7%, though retail sales underwhelmed. August PMIs painted a mixed picture: manufacturing slipped to 49.4, while services nudged up to 50.3.
The trade surplus widened, but deflation pressures lingered after the August CPI fell 0.4% from a year earlier.
The People’s Bank of China (PBoC) left Loan Prime Rates (LPR) steady in August, the One-Year at 3.00% and the Five-Year at 3.50%, as markets had expected.
Traders trim Aussie bearish bets
Positioning has shifted. Data from the Commodity Futures Trading Commission (CFTC) showed net speculative shorts on the AUD dropped to five-week lows near 82.7K contracts in the week to September 2, with open interest sliding to three-week troughs just above 185K contracts.
AUD/USD technical outlook: range still holding
AUD/USD is testing the upper end of its multi-week 0.6400–0.6600 range. Resistance comes in at the 2025 ceiling at 0.6635 (September 10). Clearing that would put the November 2024 peak at 0.6687 (November 7) back on the radar, with the psychological 0.7000 handle further ahead.
The first layer of support is at the August low of 0.6414 (August 21), which is slightly above the 200-day SMA at 0.6387 and the June low at 0.6372 (June 23).
Momentum signals are giving us different signals. The Relative Strength Index (RSI) has gone over 65, indicative that further gains remain in the pipeline, but the Average Directional Index (ADX) is still close to 14, suggesting that the current trend lacks juice.
AUD/USD daily chart
Where next for AUD/USD?
The pair appears like it will remain in its range for now. A more convincing breakthrough would probably need better Chinese data, a change in Fed policy, or an unexpected move from the RBA.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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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.
