Australian Dollar Price Forecast: RBA to the rescue?

The Australian Dollar (AUD) kicked off the new week on the back foot, extending its recent slide. AUD/USD looks increasingly likely to test that key 0.6500 support area soon if the current downtrend keeps running.

Monday’s pullback mainly reflected renewed strength in the US Dollar (USD), as traders digested both the Fed’s recent rate cut and Chair Powell’s upbeat comments, which dampened hopes of another reduction at December’s meeting.

Adding to the cautious tone, uncertainty over a potential US government shutdown continues to hang over markets, weighing on broader risk sentiment.

The domestic backdrop: still resilient, but cooling

Australia’s economy isn’t firing on all cylinders, but it’s holding up better than many had expected. The October PMIs painted a mixed picture: manufacturing slipped back below the 50 mark to 49.7 (from 51.4), while services edged higher to 53.1 (from 52.4).

Retail Sales were up 1.2% in June, and the August trade surplus eased only slightly to A$1.25 billion. Business investment grew through Q2, helping GDP expand 0.6% on a quarterly basis and 1.1% from a year earlier. Hardly stellar, but solid enough to suggest some underlying momentum remains.

That said, the labour market is showing early signs of fatigue. Unemployment nudged up to 4.5% in September (from 4.3%), while employment growth slowed to just 14.9K. Not alarming yet, but it does hint that hiring is losing some pace.

The RBA’s focus: inflation above all

The Reserve Bank of Australia (RBA) remains firmly fixated on inflation and employment trends.

Price pressures stayed sticky through Q3: headline inflation rose 1.3% on the quarter and 3.2% YoY, while the Monthly CPI Indicator hit 3.5% in September. Among the RBA’s preferred gauges, the Weighted Median CPI rose 2.8% YoY and the Trimmed Mean reached 3.0%, brushing the upper end of the RBA’s 2–3% target range.

At its September meeting, the RBA kept the Official Cash Rate (OCR) unchanged at 3.60%, as expected. But the tone was more cautious, with policymakers warning that disinflation might be stalling after the latest CPI surprise and hinting that Q3 inflation could again exceed expectations.

Governor Michele Bullock has kept her guidance straightforward: every meeting is “data-dependent” and assessed “meeting by meeting”. She hasn’t ruled out cuts, but made clear the board needs firmer evidence that both inflation and demand are cooling before acting.

Speaking a couple of weeks ago, Bullock noted that any upside surprise in core inflation would be a “material miss” the bank couldn’t overlook. She also played down the recent uptick in unemployment, calling it consistent with expectations. In short: softer jobs data won’t move the dial, but another hot inflation print could easily delay any talk of easing.

That said, Markets now price roughly a 95% chance the RBA holds steady on Tuesday, with just under 5 basis points of cuts implied by year-end.

China’s influence still looms large

Australia’s outlook remains closely tied to China’s fortunes. Chinese GDP grew 4.0% YoY in Q3, while retail sales rose 3.0% over the year to September. But the PMI data told a more uneven story: manufacturing stayed below 50 at 49.x, while services hovered near that same line.

The trade surplus narrowed from $103.33 billion to $90.45 billion in September, and CPI stayed negative at –0.3% YoY. Earlier in September, the People’s Bank of China (PBoC) left its Loan Prime Rates (LPR) unchanged at 3.00% (one-year) and 3.50% (five-year), as widely expected.

Technical outlook

Investors, and the Aussie Dollar, are cautiously waiting for the RBA meeting on Tuesday, as it could give further clues regarding the rate path in the next few months. Following on the latest hotter-than-expected inflation prints in Oz, a prudent tone from the central bank appears largely on the cards, which could in turn underpin a recovery in AUD.

In case of a deeper pullback, AUD/USD should initially meet the critical 200-day SMA at 0.6443, closely followed by the October trough at 0.6440 (October 14). Down from here lines up the August floor at 0.6414 (August 21), prior to the June low of 0.6372 (June 23).

In case bulls regain some initiative, there is an immediate hurdle at the October top of 0.6629 (October 1), ahead of the 2025 ceiling of 0.6707 (September 17). Once cleared, the pair could head north toward the 2024 top at 0.6942 (September 30), ahead of the 0.7000 yardstick.

Momentum indicators appear somewhat bearish: the Relative Strength Index (RSI) eases to the 48 area, indicating that extra losses should not be ruled out. In addition, the Average Directional Index (ADX) near 16 suggests a still pale trend.

AUD/USD daily chart

The takeaway

For now, AUD/USD remains trapped in a 0.6400–0.6700 range, waiting for a clear trigger to break free, whether that comes from China’s economic signals, the Fed’s next move, the RBA’s tone, or a more convincing shift in the US–China trade dynamic.