Australian Dollar Price Forecast: Upside bias remains firm

Despite AUD/USD pulling back a little, it still has a medium-term positive tone overall, reinforced by the RBA’s hawkish narrative, while speculative positioning also has its say.

That said, the Aussie Dollar (AUD) is once again under selling pressure on Tuesday, dragging AUD/USD lower after two consecutive days of gains, easing to the 0.7070–0.7060 band.

It's worth noting that the correction is happening even if the US Dollar (USD) is trading slightly lower, which shows that FX markets remain prudent ahead of key US data releases later in the week.

Australia, cooling but not cracking

Recent Australian data have not exactly set pulses racing, but the message remains broadly reassuring. Growth is easing, yes, but in an orderly way. Momentum has softened rather than collapsed, keeping the soft landing narrative very much intact.

January Purchasing Managers’ Index (PMI) surveys sit comfortably within that story. Indeed, both Manufacturing and Services improved and stayed in expansion territory, printing at 52.3 and 56.3 respectively. In addition, Retail Sales continue to hold up reasonably well, while the trade surplus widened to A$3.373 billion in December.

Furthermore, growth is moderating only gradually: the Gross Domestic Product (GDP) rose by 0.4% QoQ in Q3, while annual growth came in at 2.1%, exactly in line with the Reserve Bank of Australia’s (RBA) forecasts.

The labour market remains a clear bright spot after the Employment Change surged by 65.2K in December and the Unemployment Rate unexpectedly fell to 4.1% (from 4.3%), once again outperforming expectations.

Inflation, however, remains the trickier part of the picture: December Consumer Price Index (CPI) data surprised to the upside, with headline inflation rising to 3.8% YoY from 3.4%. The trimmed mean increased to 3.3%, matching consensus but sitting slightly above the RBA’s 3.2% projection. On a quarterly basis, trimmed mean inflation rose to 3.4% over the year to Q4.

China, supportive backdrop, limited spark

China continues to offer a broadly supportive backdrop for the Aussie, though it is still lacking the momentum needed to drive a sustained rally.

The economy has expanded at an annualised pace of 4.5% in Q4, with quarterly growth at 1.2%. Additionally, Retail Sales rose by 0.9% YoY in December, solid enough, but hardly eye catching.

Furthermore, more recent indicators point to renewed softness after both the National Bureau of Statistics (NBS) Manufacturing PMI and the Non Manufacturing PMI slipped back into contraction territory in January, at 49.3 and 49.4 respectively.

The Caixin surveys painted a slightly brighter picture. Manufacturing edged up to 50.3, holding just above the expansion threshold, while Services improved to 52.3.

Trade was one of the clearer positives. The surplus widened sharply to $114.1 billion in December, helped by a near 7% jump in exports and a solid 5.7% rise in imports.

Inflation signals, however, remain mixed: Consumer prices were unchanged at 0.8% YoY, while producer prices stayed firmly negative at -1.9%, a reminder that deflationary pressures have not fully disappeared. Wednesday’s release of fresh inflation data will be the salient event on the Chinese docket this week.

For now, the People’s Bank of China (PBoC) is sticking with caution: Loan Prime Rates (LPR) were left unchanged in January at 3.00% for the one year and 3.50% for the five year, reinforcing the view that policy support will remain gradual rather than aggressive.

RBA, hawkish lean, but no rush to reverse

The RBA lifted its Official Cash Rate (OCR) to 3.85% in a clearly hawkish move that broadly matched expectations. Upgrades to growth and inflation forecasts point to firmer momentum in activity and price pressures that are becoming more widespread. Core inflation is now expected to remain above the 2 to 3% target band for most of the forecast horizon, strengthening the case for policy restraint.

The key message is that inflation is increasingly demand driven. Policymakers pointed to stronger than expected private demand as a reason for tighter policy, even as productivity growth remains weak. Governor Bullock framed the move as an adjustment rather than the start of a new hiking cycle, but the signal was clear, the RBA is uncomfortable with the upward drift in inflation.

For markets, this suggests rates are likely to stay restrictive for longer, limiting the scope for near term easing. From an FX perspective, that provides modest support for the Aussie, particularly against low-yielding currencies, even if the RBA’s focus on full employment caps the odds of a more aggressive tightening phase.

In the meantime, markets are pricing nearly 38 basis points of additional tightening this year.

Positioning, optimism creeping back in

Positioning data point to a return of optimism around the Aussie. According to the Commodity Futures Trading Commission (CFTC), non commercial traders lifted their net long exposure to around 26.1K contracts in the week to February 3, levels last seen in late November 2024.

Open interest has also risen for a third consecutive week, reaching roughly 254.2K contracts. That pattern suggests fresh money is entering the market rather than positions simply being rolled.

What to watch next

Near term: Attention shifts back to the US. Incoming data, tariff headlines and geopolitical noise are likely to dominate US Dollar price action. Domestically, the key swing factors remain the labour market and inflation releases and what they imply for the RBA’s next steps.

Risks: AUD is still highly sensitive to global risk sentiment, and any sudden deterioration in risk appetite, renewed concerns around China, or a firmer USD could quickly unwind recent gains.

The technical landscape

Immediately to the upside for AUD/USD emerges the 2026 ceiling at 0.7098 (February 9), seconded by the 2023 peak at 0.7157 (February 2).

On the other hand, the loss of the February base at 0.6896 (February 26) exposes a probable decline to the transitory 55-day SMA at 0.6733 prior to the 2026 bottom at 0.6663 (January 9), and the temporary 100 day SMA at 0.6643. Once this region is cleared, spot could challenge its critical 20-day SMA at 0.6576, ahead of the November 2025 floor at 0.6421 (November 21).

Meanwhile, momentum indicators remain firm: the Relative Strength Index (RSI) hovers around the 68 level, while the Average Directional Index (ADX) above 48 is indicative of a strong trend.

Bottom line

AUD/USD remains closely tied to global risk sentiment and China’s growth outlook. A sustained break above the 0.7000 handle would help turn the current constructive bias into a more convincing bullish signal.

For now, a softer USD, steady if unspectacular domestic data, a clearly hawkish RBA, and a broadly supportive, if uninspiring, China backdrop keep the balance of risks tilted toward further upside rather than a meaningful reversal.