Australian Dollar Price Forecast: The silence of the bulls

The Aussie Dollar continues to lose momentum, remaining unable to not only find a catalyst that prevents the currency from falling further but also reverse course and at least start trimming its recent weakness  Meanwhile, dynamics around the US Dollar and geopolitics seem to have been too much for the Aussie, prompting a correction in AUD/USD to the sub-0.6900 region, opening the door to a potential challenge of the critical 200-day SMA.

The Australian Dollar (AUD) has practically faded the rally seen from late March to mid-May, motivating AUD/USD to clinch its seventh day in a row of losses and breach below the 0.6900 support level, hitting multi-week troughs and paving the way for a probable visit to its critical 200-day SMA around 0.6850 sooner rather than later.

Another dreadful day for the risk complex sees the US Dollar (USD) gather extra steam and advance to levels last seen in May 2025 well north of the 101.00 barrier when gauged by the US Dollar Index (DXY), always in response to steady bets that the Federal Reserve (Fed) might eventually hike its interest rates in the second half of the year.

In addition, the persistent scepticism surrounding the recently clinched US-Iran deal appears to have removed, albeit for now, the geopolitical premium from global markets.

Domestic fundamentals remain supportive

The Australian economy does look healthy and stable altogether and, honestly, in much better shape than many of its G10 peers.

This performance appears underpinned by a solid domestic demand and pretty decent figures when it comes to economic growth. The spectre of sticky inflation seems to justify the cautious and data-dependent stance from the Reserve Bank of Australia (RBA), particularly following the latest meeting, where it raised rates to 4.35%, broadly in line with market expectations.

Supporting the above, the preliminary data from the June Purchasing Managers’ Index (PMI) showed Manufacturing at 51.2 (from 50.7) and Services at 49.9 (from 48.7).

Adding some colour to the domestic fundamentals, the latest trade balance figures showed a A$1.791 billion surplus in April, reversing March’s A$1.024 billion deficit. The latest Gross Domestic Product (GDP) data, meanwhile, kind of disappointed expectations: the economy expanded by 0.3% QoQ in Q1 2026 (from 0.9%) and 2.5% YoY (from 2.5%), both prints missing consensus.

Still on the not-so-bright side, the labour market has cooled over the last couple of months. Indeed, the Unemployment Rate ticked higher to 4.5% in April (from 4.3%), and the Employment Change dropped by 18.6K individuals (from the revised 23.3K gain seen in the prior month).

Regarding inflation, May data was far from telling after the Consumer Price Index (CPI) ticked lower to 4.0% from a year earlier (from 4.2%), while the Trimmed Mean and the Weighted Median rose to 3.6% over the last twelve months (from 3.4%). The pace of disinflation remains weak, although the direction is still broadly correct. Somehow reinforcing that view, the latest Melbourne Institute’s Consumer Inflation Expectations eased to 5.5% in May (from 5.6%).

For the RBA, that means the job is still incomplete, as policymakers continue to signal that inflation may only return to target around mid-2028, keeping the focus firmly on patience rather than any imminent pivot.

Looking ahead, investors expect the central bank to maintain its current stance at its August meeting, while they now anticipate nearly 15 basis points of tightening by year-end.

China shifts from engine to anchor

China now looks more like a stabilising force than the tailwind it usually provides to the Australian economy.

Let’s see some numbers: the economy expanded by 5.0% YoY in Q1, while Retail Sales unexpectedly contracted by 0.6% in the year to May, but expanded by 1.41% since January. In addition, Industrial Production exceeded expectations last month after expanding by 4.5% from a year earlier.

Of note is the strong recovery of the trade balance, with May’s surplus widening to $105.43 billion from around $84.8 billion in the previous month and both imports and exports expanding markedly.

However, business activity seems to be regaining traction after the National Bureau of Statistics (NBS) reported Manufacturing PMI at 50 in May (from 50.3), while Services returned to the expansion territory at 50.1 (from 49.4). At the same time, private gauges such as RatingDog still point to expansion, with Manufacturing coming in at 51.8 and Services improving to 54.4.

The disinflationary trend in China seems to have re-emerged after the CPI disappointed expectations and rose by 1.2% in the year to May, matching the previous reading. On a monthly basis, prices dropped by 0.1%, while Producer Prices gained 3.9% over the last twelve months, also holding steady from April’s prints.

In the meantime, and matching the broad consensus, 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 at its event earlier on Monday.

In summary, China is no longer pushing growth higher, but it is not dragging it down aggressively either. It is simply keeping things steady.

No rush to move

As broadly awaited by market participants, the RBA left its Official Cash Rate (OCR) unchanged at 4.35% at its event early on Tuesday. 

The Reserve Bank of Australia adopted a hawkish stance at its June meeting, reiterating that inflation remains too high and cautioning that more rate rises may yet be necessary if price pressures persist. Policymakers also noted continuing concerns from increased energy costs and underlined their commitment to preventing inflation from becoming entrenched.

That said, Governor Michele Bullock was a little more measured in tone at her press conference. She kept the option of additional tightening open but said the incoming data had generally progressed as expected and showed the Board did not need to tighten at this meeting. The economy is not entering a recession, and the employment market is still reasonably tight, she said.

The message in general was one of cautious tolerance. Inflation is still the bank's biggest worry, but officials seem more satisfied with the progress made so far and prepared to let past rate rises have more time to work through the economy. Further tightening is feasible, but the bar for another rate rise appears higher than the phrase alone may lead one to expect.

The next move: higher or running out of steam?

Base case

While above its key 200-day SMA around 0.6850, the pair’s outlook is expected to remain tilted to further advances. However, such a move needs a strong catalyst to emerge, and it feels heavily dependent on the broader backdrop: without a sustained improvement in risk sentiment or continued US Dollar weakness, the probability of extra gains could start to lose momentum.

Bull case

Further conviction is needed. If risk appetite picks up serious pace, spot could extend the uptrend and initially confront the 0.7200 hurdle before reaching the 2026 peak near 0.7280, just ahead of the minor 0.7300 barrier. Further up, the 2022 ceiling at 0.7593 awaits. Speculative positioning seems to be leaning toward this scenario for now.

Bear case

In the current volatile context, we should not rule out the loss of further momentum. If sentiment deteriorates, the Greenback gains extra momentum, or Chinese data continue to disappoint, spot could recede further and initially challenge its critical 200-day SMA near 0.6850.

The eventual recovery appears more distant in the current context, and it seems market participants are taking notes of these developments.

Investors head for the exit

The latest CFTC data show speculative traders turned net short the Australian Dollar for the first time since late January, with positioning slipping to around -4.1K contracts in the week ending June 16.

On the surface, the move back into negative territory looks like a bearish shift. But look closer, and the story looks less like investors actively betting against the Aussie and more like a continued exodus from what had been a heavily crowded long trade earlier in the year.

Speculative positioning was -22.3K contracts for the week, continuing the wider pullback seen recently. Over the past month alone, net positioning has dropped by almost 90K contracts, highlighting just how quickly enthusiasm for the currency has faded.

Open interest tells a similar story. Total outstanding contracts declined to 295.5K from 314.2K the previous week, indicating that traders are leaving the market rather than aggressively building new short positions. In other words, the trend still looks more like long liquidation than a rush into outright bearish bets.

What's particularly interesting is that, despite the move into net short territory, positioning remains relatively elevated from a historical perspective. The current net position still sits in the 81st percentile of its 5-year range, while the speculative exposure ranks in the 82nd percentile.

That may sound counterintuitive, but it reflects where the market started. Speculators had built up a sizeable long position earlier in the year, and although much of that exposure has now been unwound, positioning remains richer than it has been for most of the past five years.

The standout figure is arguably the 4-week change of nearly -90K contracts, underscoring the scale of the recent repositioning. The market has gone from being one of the more popular bullish trades in the FX space to one where investors are increasingly stepping back and reassessing the outlook.

What the positioning data really tell us

The latest CFTC figures suggest confidence in the Aussie has deteriorated sharply over the past month. While non-commercial traders have moved back into net short territory, the broader picture still looks more like a significant unwinding of bullish exposure than the emergence of a deeply bearish consensus. Positioning momentum remains negative, but historical measures show the market has yet to reach the kind of pessimistic extremes that would typically accompany a fully fledged bearish view on the Aussie.

Key events that could shape the next move

In the near term, the US Dollar, global risk sentiment, and geopolitics remain the main focus. Those remain the key drivers of price action. Next on tap on the Australian docket is the release of the crucial labour market report for the month of May.

Key risks include a sharper slowdown in China, a persistently cautious Fed, a change in investors' risk sentiment, or any shift in the RBA’s stance. Any of these could quickly destabilise the Australian currency in the near term.

Technical backdrop

In the daily chart, AUD/USD trades at 0.6891, extending a bearish phase below the 55-day and 100-day simple moving averages (SMAs) at 0.7128 and 0.7083 respectively, which keeps the pair structurally capped despite holding just above the 200-day SMA at 0.6856. The Relative Strength Index (14) sits deep in oversold territory near 26.7 while the Average Directional Index (14) strengthens above 35, suggesting persistent downside pressure even as the sell-off risks becoming stretched.

On the downside, initial support is seen at the 200-day SMA around 0.6856, followed by a nearby horizontal floor at 0.6833; a clear break below this cluster would expose subsequent levels at 0.6660 and 0.6593, with deeper cushions at 0.6414 and 0.6373. On the topside, recovery attempts face immediate resistance at the horizontal barrier near 0.7079 and the 100-day SMA at 0.7083, ahead of the 55-day SMA at 0.7128, while more distant hurdles emerge at 0.7278, 0.7283 and 0.7661.

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

The verdict

The broader backdrop for the Australian Dollar remains constructive, albeit losing some momentum. In the meantime, the RBA’s cautious stance should continue to provide some degree of support on dips.

But the Australian Dollar is still a currency that trades heavily on sentiment. When confidence is strong, the Aussie performs well. When uncertainty creeps in, the Greenback tends to take over.

So while the medium-term story still leans constructive, the near-term outlook feels less certain. The move higher should be there, but conviction is not quite there…yet.