Australian Dollar Price Forecast: The short-term outlook remains constructive
- AUD/USD halted a three-day positive streak, briefly revisiting the sub-0.6600 zone.
- The US Dollar remained under scrutiny following the US government shutdown.
- The RBA will release its Financial Stability Report (FSR) on Thursday.
The Australian Dollar (AUD) halted its strong recovery on Wednesday, prompting AUD/USD to keep its trade around the 0.6600 region following a brief knee-jerk below that key level.
The pair’s U-turn came from a vacillating US Dollar (USD), which managed to set aside the initial bearish tone despite mixed US data releases and increasing uncertainty after the recently announced US federal shutdown.
Economy still holding up
Australia’s economy keeps showing more resilience than many expected. Final September numbers hinted at some cooling, although they remained above the 50 mark, meaning activity is still expanding.
The hard data has backed that story too. Retail sales jumped 1.2% in June, July’s trade surplus widened to A$7.3 billion, and business investment picked up through Q2. GDP was steady, rising 0.6% quarter-on-quarter and 1.8% year-on-year.
The only soft spot has been jobs. The unemployment rate held at 4.2% in August, but employment shrank slightly, down 5.4K.
RBA treads carefully
Inflation is proving sticky. August’s Monthly CPI Indicator (Weighted Mean) accelerated to 3.0% from 2.8% in the previous month, while Q2 CPI rose 0.7% QoQ and 2.1% YoY.
That was enough for the Reserve Bank of Australia (RBA) to stick to a hawkish hold earlier this week, leaving the cash rate unchanged at 3.60% in a unanimous call — exactly what markets were looking for.
Importantly, the statement quietly dropped earlier hints about potential easing. Policymakers flagged worries that the disinflation trend may be slowing after August’s upside CPI surprise. They also cautioned that Q3 inflation could easily overshoot their 2.6% forecast.
Complicating things, the economy itself isn’t rolling over. Real wages are creeping higher, asset prices are on the rise, and households are feeling richer — a combination that makes it tough to justify cutting rates.
Governor Michele Bullock was careful in her press conference, stressing that policy remains data-dependent and decisions will be made one meeting at a time. She didn’t close the door on rate cuts, but was clear they’ll only come if supply-demand imbalances cool further.
For now, the quarterly trimmed mean CPI at 2.7% YoY in Q2 is the key gauge, and it’s still inside the RBA’s 2–3% comfort zone.
Markets adjusted quickly: futures now imply roughly 13 basis points of easing by year-end.
China remains the swing factor
Australia’s outlook is still tied closely to China. Growth there has been uneven: Q2 GDP came in strong at 5.2% YoY, but August retail sales disappointed at 3.4%. The September PMIs were mixed, as manufacturing stuck in contraction at 49.8, while services barely held at 50.0. Deflation fears persist too, with CPI falling 0.4% YoY in August.
The People’s Bank of China (PBoC) kept its Loan Prime Rates (LPR) unchanged in September, with the one-year at 3.00% and the five-year at 3.50%, as anticipated.
Positioning stays bearish
Traders remain downbeat on the Aussie. Commodity Futures Trading Commission (CFTC) data for the week ending September 23 showed net shorts climbing to around 101.6K contracts, a two-week high. Open interest also rose to about 160.8K contracts, the most in two weeks.
Technicals unchanged
Despite Wednesday’s correction, the near-term outlook for the Aussie still points to further gains, with the immediate target at its YTD peaks.
That said, bulls remain laser-focused on the 2025 ceiling at 0.6707 (September 17). A break above this level could put last year’s high at 0.6942 (September 30) back on the radar, just ahead of the psychological 0.7000 threshold.
On the downside, the weekly low at 0.6520 (September 26) appears reinforced by the temporary 100-day Simple Moving Average (SMA). South from here, AUD/USD risks a move to the August valley at 0.6414 (August 21), supported by the proximity of the 200-day SMA. Below that sits the June base at 0.6372 (June 23).
Momentum indicators remain mixed: the Relative Strength Index (RSI) has eased toward 54, hinting at still-early buying pressure, while the Average Directional Index (ADX) just over 17 continues to suggest a weak trend.
AUD/USD daily chart
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Stuck in a range for now
For the moment, AUD/USD is boxed into a broad 0.6400–0.6700 range. A breakout likely needs a bigger catalyst: maybe stronger Chinese data, a softer Fed tone, or a persistently cautious RBA.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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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.
