Australian Dollar Price Forecast: Tough hurdle emerges at 0.7200

The Aussie Dollar extends its multi-week recovery, finally approaching the key 0.7200 barrier against the US Dollar. Indeed, AUD/USD has been gaining momentum since early July, mostly underpinned by the RBA’s cautious stance, while still sticky domestic inflation continues to bring some cushion against occasional bouts of weakness.

The Australian Dollar (AUD) comes under some decent selling pressure at the beginning of the week vs. the US Dollar (USD), motivating AUD/USD to recede from Friday’s multi-week highs around 0.7180.

Indeed, the pair’s downbeat tone comes amid a mild recovery in the Greenback’s mood, as market participants continue to assess last week’s move by the US Treasury regarding bond buybacks while gearing up for key data releases in the US docket as well as the speech by Chair Warsh at the Jackson Hole Symposium toward the end of the week.

Australia’s domestic backdrop remains resilient

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

This performance appears reinforced by a solid domestic demand and pretty decent figures when it comes to economic growth. In addition, the spectre of sticky inflation seems to justify the cautious and data-dependent stance from the RBA.

Contributing to the healthy fundamentals, domestic business activity is expected to remain in the expansion territory in August, after the advanced prints from the Purchasing Managers’ Index (PMI) showed Manufacturing at 52.0 (unchanged from July) and Services a tad lower at 52.9 (from 53.6).

Adding extra shine, the latest trade balance figures showed an A$1.929 billion surplus in June, reversing May’s A$2.367 billion deficit. However, the latest Gross Domestic Product (GDP) data disappointed expectations after the economy expanded by 0.3% QoQ in Q1 2026 (from 0.9%) and 2.5% YoY, matching the Q4 2025 expansion.

Meanwhile, the labour market appears to have tempered the previous optimism after the Unemployment Rate ticked higher to 4.5% in July, and the Employment Change fell by 15.8K individuals (from the revised 80.3K gain seen in the previous month).

Regarding inflation, Q2 data saw inflationary pressures pick up pace, lending further support to the view of a prudent RBA. All in all, the latest inflation readings paint the picture of a choppy road to the bank’s target, if, and only if, consumer prices manage to enter the 3%-2% band at some point in the (distant ?)future.

Somehow reinforcing that view, the latest Consumer Inflation Expectations rose to 4.9% in August (from 4.7%), according to the Melbourne Institute.

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

Looking ahead, investors now expect the central bank to tighten its monetary policy by just over 4 basis points by year-end, while it should keep its OCR unchanged at its September 29 gathering.

China offers stability rather than momentum

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 4.3% YoY in the April-June period, while Retail Sales gained just 0.6% in the year to July. In addition, Industrial Production eased its traction and expanded by 4.5% during the last month.

Of note is the strong recovery of the trade balance, with June’s surplus widening to $125.62 billion from $105.4 billion in the previous month, with both imports and exports expanding markedly.

However, the latest business activity gauges left investors scratching their heads after the National Bureau of Statistics (NBS) reported the Manufacturing PMI at 49.2 in July (from 50.3) and Services at 49.0 (from 50.2). Contrasting with those official readings, private measures like RatingDog remained in expansionary territory last month, with Manufacturing at 50.9 (from 51.7) and Services at 50.4 (from 54.1).

The disinflationary trend in China seems to have re-emerged after the CPI disappointed expectations and rose by just 0.5% in the year to July (from 1.0%). On a monthly basis, prices dropped by 0.1%, while Producer Prices gained 3.5% over the last twelve months, easing from the 4.1% annual gain recorded in the previous month.

Regarding monetary policy, the People’s Bank of China (PBoC) left its Loan Prime Rates (LPR) unchanged at 3.00% for the one-year tenor and 3.50% for the five-year tenor at its meeting earlier in the month.

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

RBA keeps the door open to further tightening

The RBA left its Official Cash Rate (OCR) unchanged on August 11 but retained a clear tightening bias as inflation remains too high and risks are skewed to the upside. In addition, the decision to hold rates was unanimous.

Furthermore, the bank judged monetary policy to be somewhat restrictive following three rate increases this year. However, the Board did discuss another increase, and Governor Michele Bullock confirmed that a rate cut was not considered. She said a further hike remained a possibility if incoming data showed persistent inflation pressure.

Back to inflation, the Trimmed Mean is forecast at 3.3% in Q4 2026, remaining above 3% until mid-2027 before falling towards 2.5% by early 2028. The bank expects headline inflation at 3.6% in Q4 2026, 2.6% in Q4 2027 and 2.4% in Q4 2028. That said, short-term inflation expectations have eased but remain higher than earlier in the year.

Shifting to the labour market, it is still considered slightly tight, with only limited near-term easing expected. The jobless rate is projected to rise from 4.5% in Q4 2026 to 4.7% in Q4 2027 and 4.8% in Q4 2028. On this, Bullock stressed that slower economic growth and reduced labour-market tightness were necessary to bring inflation sustainably back to target.

Finally, the RBA expects subdued growth, with GDP expanding by 1.4% in Q4 2026, 1.6% in Q4 2027 and 1.8% in Q4 2028. Although the housing market has weakened more than anticipated, Bullock said this would not prevent the Board from raising rates.

Overall, the meeting delivered a hawkish hold. The RBA is waiting for more information, but another rate increase remains a possibility, while rate cuts are not being considered for now.

AUD/USD outlook: Three possible paths

Base case

While above its key 200-day SMA, near 0.6950, the pair’s outlook is expected to remain tilted to further advances. However, for such a scenario to materialise, it needs a strong catalyst to emerge and is 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 gathers serious pace, spot should first leave behind the key 0.7100 barrier with solid conviction to face the next hurdle at the 0.7200 yardstick, all before reaching the 2026 ceiling near 0.7280. Up from here comes the minor 0.7300 barrier. Further up, the 2022 peak at 0.7593 is still in place. 

Bear case

In case the global sentiment deteriorates, the Greenback gains extra momentum, or Chinese data continue to disappoint, the pair could recede further and initially challenge its provisional 100- and 55-day SMAs around 0.7070 and 0.7000, respectively, prior to the critical 200-day SMA near 0.6950. The loss of this zone could lead to a renewed wave of bearish moves in the short term.

Australian Dollar: Bears return, but broader selling momentum stabilises

AUD speculative positioning strengthened in the week ending August 18. Indeed, net shorts fell to nearly 44.2K contracts, extending the negative bias, although the weekly deterioration moderated to around -4.9K contracts from just over -6K contracts.

The key signal came from participation, with open interest rising by more than 21.3K contracts to around 288.5K contracts, an increase of roughly 8%. The move looks more like a new bearish position than just a long liquidation as net shorts are increasing and open interest is higher. This suggests more conviction behind the negative AUD bias.

Furthermore, speculative exposure fell to -15.3% from -14.7%, and the 4-week change improved slightly to around -6.5K contracts from about -8.5K contracts. The Speculative Exposure Percentile was still high at 79.3, meaning bearish exposure is historically high. But the Net Position Percentile of 60.1 means positioning is not extreme yet.

All in all, AUD positioning remains bearish, with rising participation reinforcing the signal. However, the improved 4-week trend and moderate net-position percentile suggest that the short bias is firm but not yet excessively crowded, leaving room for further deterioration if new shorts continue to accumulate.

Key catalysts and risks ahead

In the near term, dynamics around the Greenback, global risk sentiment, and geopolitics remain the main focus. Those remain the key drivers of price action. On the domestic docket, Tuesday’s release of the RBA Minutes will be the main focus.

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

Technical analysis

In the daily chart, AUD/USD trades around 0.7150, maintaining a bullish near-term bias as spot holds above the 55-, 100- and 200-day simple moving averages (SMAs) clustered between roughly 0.7005 and 0.7072. The pair has extended its recovery from the mid-0.69s and is now testing the upper end of its recent range, with the Relative Strength Index (14) in the mid-60s, indicating firm but not extreme upside momentum, while the Average Directional Index (14) in the mid-teens suggests a strengthening yet still moderate trend.

On the downside, immediate support is at the horizontal level near 0.7079, backed by the 100-day SMA at 0.7072, then the 55- and 200-day SMAs at 0.7005 and 0.6955, and deeper support at 0.6833 and 0.6660. On the topside, resistance is eyed first at 0.7278 and 0.7283, creating a tight supply band just above the market, with a more distant barrier at 0.7661 that would come into view only on a sustained breakout.

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

Broader outlook stays constructive despite external headwinds

The Aussie remains constructive on the bigger picture, but the path higher is getting tougher.

Australia's domestic background continues to compare favourably with that of many advanced economies, and the RBA is in no rush to abandon its mildly hawkish bias.

However, the ongoing recovery remains exposed to bouts of strength from the US Dollar, steady geopolitical uncertainty and a Chinese economy that is stabilising rather than accelerating.

For now, the 200-day SMA remains the key zone. Holding above that level keeps the broader bullish structure intact, but a convincing break above 0.7100 will likely require either further deterioration in sentiment surrounding the Greenback, a more upbeat mood in the risk-linked complex, additional cooling of US inflation, or a dovish turn from the Fed.

Until then, expect the AUD to be more driven by outside forces than domestic fundamentals.