Australian Dollar Price Forecast: Some consolidation appears likely
- AUD/USD fades Monday’s rebound and recedes to the sub-0.6700 area.
- The US Dollar manages to reverse the recent pullback, weighing on the risky assets.
- Australia’s Consumer Confidence eased to 92.5 in January, Westpac said.
AUD/USD appears to be pausing for air. After Monday’s rebound, the pair quickly ran out of steam and slipped back below the 0.6700 mark, with a firmer US dollar once again taking centre stage.
The Aussie Dollar (AUD) came under renewed pressure on Tuesday, wiping out the early-week optimism and dragging AUD/USD back through the key 0.6700 level. The move felt less like a change in narrative and more like a reminder of who’s still driving near-term price action.
At the centre of it all is the US Dollar’s renewed bid. The greenback has managed, at least for now, to shake off lingering worries about Federal Reserve (Fed) independence, as investors digest December’s US CPI data. That release has reinforced the view that further Fed rate cuts remain very much on the roadmap, even if the timing is still up for debate.
Taking a step back, the bigger picture for AUD/USD still looks fairly solid. The pair is holding comfortably above both its 200-week and 200-day moving averages, at 0.6624 and 0.6518 respectively, which keeps the medium-term bias tilted to the upside and suggests the latest dip is more noise than a shift in trend.
Australia: ticking over, not turning heads
Australia’s recent data haven’t exactly sparked excitement, but they haven’t raised alarms either. Growth is slowing, but in an orderly way, and the numbers continue to fit the soft-landing narrative.
December PMI readings echoed that theme. Both Manufacturing and Services eased slightly in the preliminary prints, but they remain firmly in expansion territory. Retail Sales are holding up reasonably well, and while the trade surplus narrowed to A$2.936 billion in November from A$4.356 billion, it’s still comfortably positive.
Growth has cooled a little. GDP expanded by 0.4% QoQ in Q3, down from 0.7% previously. Even so, annual growth held at a solid 2.1%, broadly in line with what the Reserve Bank of Australia (RBA) had pencilled in.
The labour market is also beginning to lose a bit of steam. Employment fell by 21.3K in November, though the unemployment rate held steady at 4.3%, suggesting cooling rather than cracking.
Inflation remains the awkward piece of the puzzle. Price pressures are easing, but only gradually. Headline CPI slowed to 3.4% in November, while the trimmed mean edged down to 3.2%, still well above the RBA’s comfort zone.
China lends a hand, but with limits
China continues to offer some support to the Aussie, though it’s no longer the powerhouse it once was.
GDP growth held at 4.0% from a year earlier in the July–September quarter, while Retail Sales rose 1.3% YoY in November. Decent numbers, but far from the kind of momentum that used to turbocharge the AUD.
More recent data hint at a mild improvement. Both the official Manufacturing PMI and the Caixin index edged back into expansion at 50.1 in December. Services activity has also picked up, with the non-manufacturing PMI at 50.2 and Caixin’s Services PMI holding firm at 52.0.
Trade data were another bright spot. The surplus widened to $111.68 billion in November, with exports up nearly 6% and imports down close to 2%.
Inflation still sends mixed signals: Headline CPI was steady at 0.8% over the last twelve months in December, but Producer Prices remain in the red, down 1.9% from a year earlier, a reminder that deflationary pressures haven’t fully faded.
For now, the People’s Bank of China (PBoC) is staying patient. Loan Prime Rates (LPR) were left unchanged in December, reinforcing the idea that any policy support will come gradually rather than in one big push.
The RBA stays firm, and patient
The RBA delivered exactly what markets expected at its latest meeting: a hawkish hold.
The cash rate was left unchanged at 3.60% in December, but the tone remained firm. Policymakers continue to flag capacity constraints and weak productivity as medium-term risks, even as the labour market shows early signs of cooling.
Governor Michele Bullock pushed back against expectations for near-term rate cuts, stressing that the Board is comfortable with an extended pause, and hasn’t ruled out further tightening if inflation proves stubborn. Q4 trimmed mean CPI was flagged as a key input, though that data won’t arrive until late January.
The December minutes revealed healthy internal debate, including questions about whether financial conditions are restrictive enough. Bottom line: rate cuts this year are far from guaranteed.
That makes the late-January inflation print a potentially pivotal moment for AUD pricing. For now, markets are pricing in around 36 basis points of tightening by year-end, with the RBA widely expected to sit tight again at its February 3 meeting.
Positioning: sentiment is improving, but confidence is thin
Speculators are clearly easing off the bearish bets, but they’re not ready to flip bullish just yet. The Commodity Futures Trading Commission (CFTC) data for the week ending January 6 show net shorts in the Aussie trimmed back to around 19K contracts, the lightest positioning since September 2024.
Open interest has also climbed for a second week in a row, edging close to 231K contracts. That suggests fresh interest is coming back into the market, though conviction remains tentative rather than outright optimistic.
What’s on the radar next
In the near term, the focus shifts to the US data calendar on Wednesday. Retail Sales and Producer Prices could set the tone for the dollar and, by extension, AUD/USD.
On the risk side, it wouldn’t take much to knock the Aussie off balance. A sudden risk-off move, fresh doubts about China’s outlook, or a stronger-than-expected rebound in the US dollar could all put a quick lid on any upside.
Technical landscape
Immediately to the downside for AUD/USD emerge the weekly troughs at 0.6659 (December 31) and 0.6592 (December 18), while a deeper pullback could expose a move toward the 0.6595-0.6575 band, where sit the transitory 55-day and 100-day SMAs. South from here emerges the key 200-day SMA at 0.6517, seconded by the November base at 0.6421 (November 21).
In case bulls regain the upper hand, spot could challenge its 2026 ceiling of 0.6766 (January 7), ahead of the 2024 high at 0.6942 (September 30), all preceding the 0.7000 yardstick.
Looking at the broader scenario, the pair’s near-term positive outlook is expected to persist as long as it trades above its 200-day SMA.
Furthermore, momentum indicators keep favouring further gains, although some warnings have emerged: The Relative Strength Index (RSI) retreats toward the 53 region, while the Average Directional Index (ADX) near the 30 keeps indicating a robust trend.
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Bottom line
No fireworks, but no reason to turn bearish either.
AUD/USD remains tightly linked to global risk sentiment and China’s outlook. A clean break above 0.6800 would be needed to signal something more convincing on the upside.
For now, a choppy US Dollar, steady domestic data, an RBA that isn’t blinking, and modest help from China keep the balance tilted toward gradual gains rather than a decisive breakout.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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.
