Australian Dollar Price Forecast: The positive outlook remains in place
- AUD/USD extends its upside to new three-month peaks near 0.6650 on Tuesday.
- The US Dollar advanced marginally ahead of the Fed interest rate decision.
- The RBA delivered a hawkish hold at its meeting earlier on Tuesday.
The Australian Dollar (AUD) keeps grinding higher on Tuesday, pushing AUD/USD to the area of fresh three-month highs around 0.6650.
That move prompts spot to enter its third straight week of gains, supported by an unconvincing price action around the US Dollar (USD) and a steady, cautious stance from the Reserve Bank of Australia (RBA).
A solid, if unspectacular, economy keeps doing its job
Australia isn’t delivering blockbuster economic surprises right now, and honestly, that’s kind of the point. The recovery is moving forward at a comfortable pace, and data is generally holding up well.
The latest PMIs helped calm nerves, with Manufacturing back in expansion territory at 51.6 and Services climbing to 52.7.
Consumers are still spending too. Retail Sales were up 4.3% YoY in September, and the trade surplus widened slightly to A$3.938 billion. Business investment did dip in Q3 (-0.9% QoQ), but it looks more like a wobble than anything dramatic.
Growth missed forecasts a touch: Real GDP rose 0.4% QoQ in Q3 vs. 0.7% in Q2, but the yearly pace held at 2.1%. That’s pretty much where the RBA expected the economy to land by the end of the year, suggesting there’s still some resilience left in the tank.
The labour market is still adding fuel to the recovery as well. October saw 42.2K new jobs and the Unemployment Rate slipped to 4.3%.
Inflation is where the tension lives. October CPI accelerated to 3.8% YoY, the highest in roughly 17 months, with housing, food and recreation keeping price pressures sticky. The trimmed mean CPI, often seen as the RBA’s preferred gauge, also surprised higher at 3.3% YoY. And with the Australian Bureau of Statistics (ABS) now releasing monthly inflation prints, every release is getting more attention.
China: A steady support act, not the headliner
China remains a key safety net for Australia, though its contribution isn’t the firehose of demand seen in years past.
Q3 GDP grew 4.0% YoY and Retail Sales rose 2.9% YoY in October, respectable figures, if not thrilling.
But the momentum is softening. November PMIs pointed to further cooling, as the official NBS Manufacturing PMI ticked up to 49.2 but stayed below 50 for an eighth month, while the private-sector-focused RatingDog Manufacturing PMI slipped back into contraction territory at 49.9
That matters because the RatingDog survey captures smaller, export-heavy firms, the ones that usually lead broader economic swings.
Services aren’t booming either. The official Non-manufacturing PMI dipped below 50 to 49.5, while RatingDog’s Services reading eased to 52.1.
Trade softened too, with the surplus narrowing slightly in September to $90.07B from $90.53B.
There are a few green shoots, however: Headline CPI is back in positive territory at 0.2% YoY in October, and Core CPI nudged up to 1.2% YoY, boosted partly by Golden Week holiday travel. All eyes will now turn to November inflation numbers due Wednesday.
Still, the People’s Bank of China (PBoC) isn’t rushing to stimulate. Loan Prime Rates (LPR) remain unchanged at 3.00% (one-year) and 3.50% (five-year). So China remains a supportive friend to the Aussie, just not one handing out fireworks.
The RBA sticks to its guns
The RBA delivered a hawkish hold overnight.
As expected, policymakers kept the Official Cash Rate (OCR) at 3.60% for a third straight meeting, but the statement struck a cautious tone. The central bank highlighted growing capacity constraints amid a solid economic recovery and weak productivity, while noting that the labour market, still somewhat tight, could ease gradually from here.
In her usual press conference, Governor Bullock reinforced the hawkish message, effectively ruling out rate cuts anytime soon. She said the Board is weighing either an extended pause or even a rate hike in 2026, with risks to both growth and inflation now tilted to the upside. Bullock also emphasised the significance of the Q4 trimmed mean CPI as a key guide for future policy decisions (to be released in late January).
Technical landscape
AUD/USD keeps its multi-week recovery well in place, climbing well past the 0.6600 hurdle to reach new three-month highs, exclusively underpinned by the hawkish tone from the RBA.
The continuation of the upward bias should put the pair en route to test its 2025 ceiling of 0.6707 (September 17) prior to the 2024 high at 0.6942 (September 30) and the key 0.7000 yardstick.
In contrast, provisional contention emerges near 0.6540, where both the 55-day and 100-day SMAs coincide. The loss of this region could put a visit to the more relevant 200-day SMA at 0.6468 back on the radar, prior to the November floor at 0.6421 (November 21) and the October base at 0.6440 (October 14). Further south emerges the August trough at 0.6414 (August 21), followed by the June valley of 0.6372 (June 23).
Looking at the broader picture, further advances are likely while above the key 200-day SMA.
Finally, momentum indicators remain tilted to the bullish side, although they warn of a potential technical correction. That said, the Relative Strength Index (RSI) surpasses the 68 level, while the Average Directional Index (ADX) rising to the boundaries of the 23 level suggests a fairly strong trend.
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Bottom line for AUD/USD
The Aussie isn’t teeing up a dramatic breakout, at least not yet. The currency is still highly sensitive to what’s happening with global risk sentiment and China’s economic pulse. A drop below 0.6400 would quickly shift the mood.
But right now? A softer US Dollar, steady domestic data, a cautious but supportive RBA, and modest help from China are enough to keep the trend pointing gradually higher. It may not move quickly, but the bias still leans to the upside.
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.
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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.
