Australian Dollar Price Forecast: The 0.7150 caps the upside for now

Sticky domestic inflation and a Reserve Bank of Australia (RBA) that isn't about to temper its hawkish attitude continue to offer an underlying cushion for the Australian Dollar (AUD), allowing for additional gains while limiting the downside. However, persistent geopolitical concerns are expected to limit occasional rallies for the time being.

Tuesday’s solid performance of the Australian Dollar seems to have been just a glitch, as AUD/USD faces increasing selling pressure on Thursday, trading closer to the key contention zone around 0.7000.

The generalised resumption of the downward bias in the risk complex allows the Greenback to resume its firm uptrend, always underpinned by the intense safe haven demand in the current context of unabated geopolitical tensions in the Middle East.

Australia: cooling, not cracking

The Australian economy is slowing, but it is far from cracking.

Growth remains respectable, inflation is proving stubborn, and the Reserve Bank of Australia is still leaning hawkish. For currency markets, that combination continues to provide a meaningful floor under the Aussie.

February’s final Purchasing Managers' Index (PMI) readings told a familiar story. Manufacturing printed at 51.0 and Services at 52.2, both comfortably in expansion territory and consistent with an economy that continues to grow at a steady pace.

In addition, consumer activity continues to show surprising resilience after retail spending has held up better than many had anticipated, while the trade surplus widened to A$3.373 billion in December. The broader economy is still expanding at a healthy pace as well: the Gross Domestic Product (GDP) grew 0.8% QoQ in Q4, 2.6% from a year earlier, comfortably above the Reserve Bank of Australia (RBA) projections.

The labour market is gradually losing a bit of momentum, but it is far from breaking. Employment Change rose by 17.8K in January and the Unemployment Rate held steady at 4.1%. In other words, the cooling process appears orderly rather than abrupt, with no clear signs of stress emerging just yet.

Inflation: progress, but still sticky

Inflation, however, remains the central challenge.

January’s headline Consumer Price Index (CPI) held at 3.8% YoY, slightly above expectations, while the Trimmed Mean CPI ticked up to 3.4% YoY. The direction of travel is still lower, but the descent is proving slower than policymakers would ideally like.

From the RBA’s perspective, the job is not finished. The central bank still expects inflation to peak around Q2 2026 before gradually drifting back toward the midpoint of the 2–3% target band by mid-2028.

Credit data suggest that policy is restrictive, though not restrictive enough to crush demand. Home Loans rose 10.6% QoQ in Q4 and Investment Lending increased 7.9%, signalling that parts of the housing and credit cycle remain surprisingly active.

In short, inflation is easing, but the process remains uneven.

China: stabiliser, not a locomotive

China’s role in the Australian outlook has also evolved.

Rather than acting as a powerful growth engine, the Chinese economy currently looks more like a stabilising force.

Growth in China remains respectable, at least on the surface. Gross Domestic Product (GDP) expanded 4.5% YoY in Q4, while Retail Sales rose 0.9% YoY in the final month of 2025.

Business surveys, however, paint a slightly more nuanced picture. Official Purchasing Managers' Index (PMI) readings from the National Bureau of Statistics (NBS) were mixed in February and continued to hover in contraction territory. Manufacturing slipped to 49.0 from 49.3, while Services printed 49.5.

Yet the private surveys paint a much brighter picture. The RatingDog gauges remained firmly in expansion, with Manufacturing and Services printing at 52.1 and 56.7 respectively, both stronger than the previous month.

Inflation pressures remain minimal. The Consumer Price Index (CPI) is running at just 0.2% YoY, while the Producer Price Index (PPI) remains in deflation at -1.4% YoY. Meanwhile, the People’s Bank of China (PBoC) kept the one-year and five-year Loan Prime Rate (LPR) unchanged at 3.00% and 3.50%.

For the Australian Dollar, the takeaway is fairly straightforward. China is no longer acting as a meaningful drag, but it is not yet providing a powerful growth impulse either.

RBA: restrictive and watchful

Against that backdrop, the RBA remains firmly focused on inflation.

The central bank recently lifted the Official Cash Rate (OCR) to 3.85%, reinforcing that policymakers are not yet ready to declare victory on price pressures.

Governor Michelle Bullock noted earlier this week that financial markets have remained orderly despite rising tensions in the Middle East. For Australia, the implications are mixed. As a net energy exporter, higher commodity prices can lift national income, although a prolonged geopolitical shock could still weigh on household consumption.

Bullock also reiterated that inflation remains elevated and that the Board’s priority is to keep inflation expectations firmly anchored. Policymakers will therefore continue to assess incoming data carefully, with every meeting remaining live.

She also acknowledged that if labour market tightness persists, the unemployment rate may need to rise somewhat in order to help bring inflation back under control.

Markets currently price just over 50 basis points of additional tightening this year. That is hardly an aggressive tightening path, but it is enough to keep a meaningful yield floor under the Australian Dollar.

Positioning: conviction building

Positioning data suggest investors are increasingly buying into the Australian story.

Commodity Futures Trading Commission (CFTC) figures show non-commercial net long positions around 52.6K contracts, marking a fresh multi-year high and signalling growing conviction in the currency’s recovery narrative.

That said, open interest slipped to roughly 248.7K contracts. This hints that part of the move may reflect position adjustments rather than a broad influx of fresh capital.

In practical terms, that positioning could help the Aussie find some support on dips. At the same time, with long exposure already elevated, the currency could be vulnerable to sharper pullbacks if sentiment were to suddenly turn.

What to look for around AUD/USD

Near term: AUD/USD will likely continue to take its cues from developments abroad, particularly the US Dollar and the geopolitical backdrop. Strong US data, tariff developments, or any further escalation in the Middle East could quickly shift the market narrative.

Risk: AUD is a classic high-beta currency. If global risk appetite deteriorates, if China falters again, or if the US Dollar stages a sustained rebound, the unwind could be swift.

Technical scenario

In the daily chart, AUD/USD trades at 0.7006. The near-term bias is mildly bullish as price holds above the 23.6% Fibonacci retracement at 0.6976, measured from the 0.6421 low to the 0.7147 high, after repeatedly rejecting dips toward that area. The pair trades well above the rising 55-, 100- and 200-day Simple Moving Averages (SMAs) clustered between roughly 0.66 and 0.69, which underpins a broader upward structure despite the recent pullback from overbought territory. The Relative Strength Index (RSI) has retreated from 80+ readings to around 48, signaling easing upside momentum but not an outright bearish shift, while the Average Directional Index (ADX) sliding toward the low 30s indicates a fading yet still relevant prior uptrend rather than a strong reversal.

Immediate support is located at the 23.6% retracement at 0.6976, with the horizontal level at 0.6897 reinforcing the next downside cushion if sellers extend a corrective phase. Below there, the supports at 0.6660 and 0.6593 align with the rising medium-term SMAs and mark the zone whose loss would undermine the current bullish bias. On the upside, initial resistance emerges at the 0.7147 swing high, ahead of the horizontal barrier at 0.7158, where a daily close above would signal a renewed push higher. Further gains would expose secondary resistance at 0.7283, with 0.7661 remaining a distant bullish target in the event of a sustained trend extension.

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

Bottom line: constructive, but conditional

Resilient domestic fundamentals and a hawkish RBA keep the broader bias for AUD/USD constructive, though global risk sentiment will remain the decisive driver.

However, confidence remains conditional. Indeed, while AUD typically performs best when global risk appetite is improving, the US Dollar could regain sustained momentum in case geopolitical tensions intensify or volatility could pick up pace.