Australian Dollar Price Forecast: Upside traction remains absent

The Aussie Dollar remains unable to find sustainable upside traction, keeping its trade below the key 0.7000 threshold for now. So far, the constructive tone should remain intact while above the key 200-day SMA. Meanwhile, the dynamics surrounding the US Dollar are expected to keep ruling the sentiment in spot, while the RBA’s cautious stance also seems to underpin the Aussie on occasional bouts of weakness.

The Australian Dollar (AUD) faces some renewed downside pressure at the beginning of the week, sparking a drop in AUD/USD to two-day lows near 0.6920 and, at the same time, reversing three consecutive daily advances.

The pair’s daily retracement follows the resurgence of the demand for the US Dollar (USD) in a context of steady uncertainty surrounding the US-Iran crisis, while a sense of generalised caution ahead of the release of US inflation figures and the semiannual testimony by Chair Warsh also seems to underpin the buck.

Domestic resilience meets slowing momentum

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 final data from the June Purchasing Managers’ Index (PMI) showed Manufacturing at 51.5 (from 50.7) and Services at 50.5 (from 48.7).

Removing some shine from the domestic fundamentals, the latest trade balance figures showed a A$3.018 billion deficit in May, reversing April’s A$1.383 billion surplus. In addition,  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 (from 2.5%), both prints coming in short of expectations.

Meanwhile, the labour market remains healthy. Indeed, the Unemployment Rate ticked lower to 4.4% in May (from 4.5%), and the Employment Change increased by 40.6K individuals (from the revised 40.7K drop seen in the previous 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 just over 15 basis points of tightening by year-end.

China: Stabilising, not accelerating

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.

In the same line, business activity seems to be regaining traction after the National Bureau of Statistics (NBS) reported the Manufacturing PMI at 50.3 in May (from 50) and Services at 50.2 (from 50.1). In addition, private gauges like RatinDog remained in expansionary territory in June, as Manufacturing came in at 51.7 and Services at 54.1.

The disinflationary trend in China seems to have re-emerged after the CPI disappointed expectations and rose by 1.0% in the year to June (from 1.1%). On a monthly basis, prices dropped by 0.1%, while Producer Prices gained 4.1% over the last twelve months, exceeding the 3.9% annual gain recorded in the previous month.

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 last event.

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

The RBA keeps its options open

As widely expected, the Reserve Bank of Australia (RBA) left its Official Cash Rate unchanged at 4.35% earlier this month.

While the accompanying statement retained a hawkish tone, policymakers appeared a little more comfortable with the progress made on inflation. The Board repeated that price pressures remain too high and that further tightening could still be required if inflation proves more persistent, while pointing to higher energy costs and geopolitical tensions as key upside risks.

Governor Michele Bullock struck a more balanced tone in her press conference. Although she refused to rule out another rate increase, she noted that incoming data had broadly evolved as expected, the economy is not heading into recession and the labour market remains relatively resilient. In other words, there was no urgency to tighten policy again.

The Minutes echoed that message. Policymakers agreed that leaving rates unchanged while maintaining a restrictive policy stance offered the best balance between bringing inflation back to target and preserving the gains in the labour market. The door to another hike remains open, but for now the RBA appears willing to give previous rate increases more time to work through the economy.

The road to 0.7000

Base case

While above its key 200-day SMA, just over 0.6870, 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 picks up serious pace, spot should first meet the psychological 0.7000 barrier, then the 0.7200 yardstick, before reaching the 2026 peak near 0.7280, just ahead of the minor 0.7300 barrier. Further up, the 2022 ceiling at 0.7593 is still in place. 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 around 0.6870.

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

Positioning: Selling pressure begins to ease

Speculative positioning on the AUD dropped further in the week ending July 7, with net positioning decreasing to -24.7K contracts from -17.7K a week earlier. The latest Commodity Futures Trading Commission (CFTC) data shows a third week of rising net shorts, which represents the correction from the bullish excesses earlier this year.

Indeed, net positioning fell by an additional 7.0K contracts, while open interest shrank to 204.8K contracts from 215.8K. This latter reduction indicates that investors are mostly closing out positions rather than actively taking up new negative bets.

That said, the overall picture is somewhat less negative. Net positioning improved to -42.8K contracts from -59.5K in the 4-week period, suggesting the rate of liquidation is starting to decrease. Meanwhile, the Net Position and Speculative Exposure percentiles are still high at 74 and 75, respectively, which suggests positioning is still quite positive on a historical basis.

The new numbers collectively suggest a loss of optimism for the Aussie, rather than outright bearishness. Furthermore, investors continue to pare positions, but a wave of big selloffs witnessed in recent weeks seems to be fading, leaving some potential for their positions to shift further if the macro backdrop deteriorates.

What's next for the Aussie?

In the near term, the US Dollar, global risk sentiment, and geopolitics remain the main focus. Those remain the key drivers of price action. The next release of note in Oz will be the publication of the Consumer Confidence gauge by Westpac alongside Trade Balance results in China. In addition, the US CPI data is also expected to gather attention.

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 analysis

In the daily chart, AUD/USD trades at 0.6920, keeping a bearish near-term bias as it holds below the 55-day and 100-day simple moving averages (SMAs) clustered just above 0.7065–0.7076. The pair remains marginally above the 200-day SMA around 0.6878, which offers tentative trend support, while a subdued Relative Strength Index near 40 and a moderating yet still-elevated Average Directional Index hint that the recent downside phase is losing some momentum but not yet reversing.

On the topside, initial resistance is now seen at the 100-day SMA near 0.7065, followed by the 55-day SMA and the horizontal barrier around 0.7079, with a higher congestion band emerging between 0.7278 and 0.7283 before the more distant 0.7661 cap. On the downside, immediate support is provided by the 200-day SMA at 0.6878, ahead of the horizontal level at 0.6833, with deeper floors aligning at 0.6660, 0.6593 and the broader basing zone between 0.6414 and 0.6373.

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

The bottom line

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 remains in no rush to abandon its mildly hawkish bias. However, that support is being offset by a resilient US Dollar, lingering geopolitical tensions and a Chinese economy that is stabilising rather than accelerating.

For now, the 200-day SMA around 0.6860 remains the line in the sand. Holding above that level keeps the broader bullish structure intact, but a convincing break above 0.7000 will likely require softer US inflation, a more dovish turn from the Fed, or a meaningful improvement in global risk appetite.

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