Australian Dollar Price Forecast: Sell the rallies?

The Australian Dollar (AUD) has faced renewed downside pressure on Thursday, prompting AUD/USD to abandon the area of recent tops near 0.7040, make  U-turn after four daily advances in a row, and refocus instead on the 0.7000 neighbourhood.

The pair’s resumption of the selling interest has followed the decent improvement in the US Dollar (USD), propped up in part by escalating tensions in the Middle East crisis and a marked rebound in crude oil prices, which, in turn, bolstered the Fed’s tighter-for-longer stance.

Looking at the broader picture, spot remains vulnerable to further losses as long as it trades below its 200-day SMA near 0.7050. 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 economy bends but refuses to break

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, however, disappointed investors in September after the Unemployment Rate held steady at 4.7% (August’s print was revised higher to 4.7% from 4.6%), and the Employment Change shrunk by 39.3K, reversing August’s 29.3K increase (revised from 39.5K).

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 finds its footing, but where's the momentum?

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 4.5% YoY in the July-September period, while Industrial Production growth regained traction, expanding by 5.5% from a year earlier and 5.3% YDT. In addition, the latest trade data showed a $133.53 billion surplus in September, supported by firm increases in both imports and exports. Reinforcing this picture, consumer spending remained solid after Retail Sales expanded by 1.1% over the last twelve months.

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 September, with the CPI gaining 0.9% from a year earlier, up from 0.8%, while prices rose by 0.2% on a monthly basis. Producer Prices rose more than initially estimated by 5.0% over the previous twelve months, up from the 3.8% increase recorded in the previous month.

As widely anticipated, the People’s Bank of China (PBoC) kept its Loan Prime Rates (LPR) unchanged at 3.00% for the one-year tenor and 3.50% for the five-year tenor.

Following the latest string of auspicious results from Chinese fundamentals, it seems to finally add some optimism for Australia and the Aussie Dollar.

RBA isn't done tightening just yet

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 last week showed 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.

In the meantime, market participants now pencil in roughly 20 basis points of tightening from the RBA by year-end, while they remain pretty divided regarding a rate hike at the November 3 gathering.

Officials question whether policy is restrictive enough

Recent comments from RBA officials point to a more difficult inflation outlook, with the quarterly Trimmed Mean expected to exceed previous forecasts and businesses reporting broad cost pressures. Policymakers believe rates are somewhat restrictive, but rising neutral rates have raised fresh questions about whether current settings are tight enough.

RBA Assistant Governor Christopher Kent said there was reasonable evidence that neutral rates were rising in Australia and abroad, leaving uncertainty over whether current policy was restrictive enough. Household demand was weakening and the labour market had eased, but strong business credit suggested that financial conditions remained mixed.

Deputy Governor Sarah Hauser said the inflation outlook had deteriorated, with firms reporting broad cost pressures and the quarterly Trimmed Mean likely to exceed forecasts. The RBA remains concerned about inflation expectations and may need to respond to supply shocks to keep them anchored.

Overall, the message was cautiously hawkish this week, with further tightening possible if price pressures continue to worsen.

AUD/USD bulls face an uphill battle

Baseline outlook

A further sidelined mood should not be ruled out in the short-term horizon. In the meantime, and looking at the broader picture, the pair should face a steady chance of further declines while below the 200-day SMA around 0.7050.

The resumption of the bullish bias will likely require a strong catalyst, namely a sustained improvement in risk appetite trends or renewed and persistent weakness in the Greenback.

Upside scenario

A stronger risk-on environment should encourage the pair to clear the key 0.7000 threshold in a sustained fashion. Once surpassed, spot is expected to face the next hurdle at its 200-day SMA, all preceding the weekly top at 0.7140 (September 21). North from here, a test of the 2026 ceiling near 0.7280 should come into view.

Downside scenario

In case bears regain control of sentiment surrounding the Aussie, there should be initial support at the October valley of 0.6894 (October 15). A breach below this level would increase the likelihood of a retest of the June bottom near 0.6860 (June 30).

AUD bears pile in, but is the trade getting crowded?

Non-commercial bearish positioning in AUD intensified sharply in the week ending October 13, according to the Commodity Futures Trading Commission (CFTC) data. Indeed, speculative net shorts rose to almost 117.3K contracts, while the weekly decline moderated to just over 18.7K contracts. However, the four-week change deteriorated further to nearly -78.4K contracts, confirming that the broader bearish trend remains firmly in place.

In addition, open interest increased to nearly 339.5K contracts, the highest level in the past four weeks. Deeper net shorts and higher participation point to fresh bearish positions continuing to build, rather than the move being driven solely by liquidation.

Speculative exposure decreased to -34.6% as well, and its percentile decreased to 33.7,  which means the short exposure is not at an extreme historically relative to the open interest. However, the Net Position Percentile fell to the 0.0 area, indicating that the absolute net-short position is at its most bearish point in the five-year reference period.

Meanwhile, the options market continues to support the bearish AUD view. The one-month 25-delta risk reversal fell to -1.047 vol points on October 16, pointing toward downside protection becoming relatively more expensive. It’s at the 26th percentile of its five-year range, so it’s not surprising to see some bearish skew, but the skew to the downside is still quite modest.

More importantly, the bearish momentum in options has gained pace. Risk Reversals had a one-month change of -0.302 volatility points, a move that ranked in the 19.1st percentile of similar moves over the past. This suggests investors have been looking for more downside protection over the past month, adding to the signal of bearish positioning we are seeing from futures markets.

But the link between options pricing and spot moves is more subtle. Over the past month AUD/USD has fallen quite sharply, and risk reversals have softened by 0.302 volatility points, against an expected fall of around 0.220 based on the historical relationship. The resulting residual of -0.082 volatility points ranked 38th. The 4th percentile of the out-of-sample distribution suggests that options have repriced a bit more negatively than spot would alone suggest, but the deviation is still in a relatively normal historical range.

Overall AUD positioning remains decidedly bearish, with futures positioning and options pricing consistently signalling downside. However, the very low Net Position Percentile suggests that the short trade is becoming increasingly vulnerable to a squeeze, especially if the macro backdrop improves or bearish momentum starts to fade. However, the relatively tame speculative exposure percentile and the lack of any unusually aggressive options repricing at the same time imply that although the bearish sentiment has taken hold, it is not universally extreme across markets.

The Aussie's next move may be decided abroad

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

Data-wise, and wrapping up the week, the Australian docket will feature the advanced prints of the S&P Global Manufacturing and Services PMIs for the current month, expected to ease somewhat from September.

Beyond that, the main risks are expected to emerge from 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 currency.

Technical analysis

In the daily chart, AUD/USD trades at 0.7024, holding a capped tone as it remains below the 100-day simple moving average (SMA) at 0.7033 and the 200-day SMA at 0.7050, with the 55-day SMA higher at 0.7075. This alignment of key averages above spot suggests rallies are likely to face supply, even as the Relative Strength Index hovers in the low 50s and the Average Directional Index near 33 hints at a still-moderate but easing trend.

On the topside, immediate resistance emerges at the 100-day SMA at 0.7033, followed by the 200-day SMA at 0.7050 and the 55-day SMA at 0.7075, with a nearby horizontal barrier at 0.7079; beyond that, higher resistance is seen at 0.7278 and 0.7283, ahead of 0.7661. On the downside, initial support is located at the horizontal level around 0.6833, with lower cushions at 0.6660 and 0.6593, while deeper supports sit at 0.6414 and 0.6373 if selling pressure intensifies.

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

Hawkish RBA, bearish Aussie: Something has to give

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.