The Australian Dollar (AUD) is still finding decent support. A cautious but unmistakably hawkish tone from the Reserve Bank of Australia (RBA), together with stubbornly sticky inflation and generally solid domestic fundamentals, is helping to keep the currency on the front foot. For now, that combination leaves the door open to further upside in the near term.
The Australian Dollar kicks in the new trading week in an inconclusive manner, with AUD/USD alternating gains with losses below the 0.7100 region.
The pair’s lack of clear direction comes on the back of acceptable gains in the US Dollar (USD), as investors continue to gauge the likelihood of further rate cuts by the Federal Reserve (Fed), all ahead of the release of the FOMC Minutes later in the week.
Australia: easing, not unravelling
Recent data out of Australia have not exactly dazzled, but they do tell a reassuring story. The economy is cooling, yes, but it is doing so in a controlled and orderly way. Momentum has softened rather than collapsed, keeping the soft landing narrative very much alive.
January Purchasing Managers’ Index (PMI) surveys remain comfortably in expansion territory, with Manufacturing at 52.3 and Services at 56.3. In addition, Retail Sales are holding up reasonably well, and the trade surplus widened to A$3.373 billion at the end of 2025.
Growth, meanwhile, is moderating only gradually. Gross Domestic Product (GDP) expanded 0.4% QoQ in Q3, while annual growth printed at 2.1%, exactly in line with Reserve Bank of Australia (RBA) projections.
The labour market continues to stand out. Employment Change surged by 65.2K in December and the Unemployment Rate dipped to 4.1% from 4.3%, again beating expectations. Attention now turns to next week’s January jobs report.
Inflation remains the trickier part of the equation: December’s Consumer Price Index (CPI) surprised to the upside, with headline inflation rising to 3.8% YoY. The Trimmed Mean came in at 3.3%, in line with consensus but slightly above the RBA’s 3.2% projection. On a quarterly basis, trimmed mean inflation printed at 3.4% in the October-December period. Reinforcing the view of a sticky inflation, the Melbourne Institute’s Consumer Inflation Expectations survey jumped to 5.0% in February, the highest since August 2023.
In addition, housing credit is also worth monitoring after Home Loans surged the fastest pace since March 2021 by 10.6% QoQ in Q4 2025. In the same line, Investment Lending for Homes climbed strongly by 7.9%. In simple terms, liquidity is still flowing into property. That points to relatively loose financial conditions and strengthens the case for the RBA to stay vigilant rather than pivot too early.
China: supportive, but not a game changer
China continues to provide a decent underlying cushion for the Aussie. The backdrop is constructive, but it lacks the kind of synchronised momentum that would normally fuel a sustained AUD rally. For now, it feels more like steady background support than a true catalyst.
The economy expanded 4.5% YoY in Q4, with quarterly growth at 1.2%. Extra data showed Retail Sales expanding by 0.9% YoY in December, solid but hardly spectacular.
More recent results hint at renewed softness: The National Bureau of Statistics (NBS) Manufacturing and Non Manufacturing PMIs slipped back into contraction in January at 49.3 and 49.4, respectively. By contrast, the Caixin surveys were more encouraging, with Manufacturing edging up to 50.3 and Services improving to 52.3.
Trade was a clearer positive after the surplus widened sharply to $114.1 billion in December, with exports up nearly 7% and imports rising 5.7%.
Inflation signals remain mixed, as January consumer prices rose 0.2% YoY, while Producer Prices fell 1.4% YoY, underscoring lingering deflationary pressures.
Earlier in the year, the People’s Bank of China (PBoC) kept Loan Prime Rates (LPR) unchanged at 3.00% for the one year and 3.50% for the five year, reinforcing the idea that policy support will remain gradual rather than forceful.
RBA: restrictive, and comfortable with it
The RBA lifted the Official Cash Rate (OCR) to 3.85% in a move with a clear hawkish tilt. Upgraded growth and inflation forecasts point to firmer momentum and more persistent price pressures. Core inflation is now expected to remain above the 2 to 3% target band for much of the forecast horizon, strengthening the argument for keeping policy restrictive.
Officials have made clear that inflation is increasingly demand driven rather than purely external, highlighting resilient private demand even as productivity remains weak.
Governor Michele Bullock framed the move as a recalibration rather than the start of an aggressive tightening cycle. Still, the message was unambiguous: the Board is not comfortable taking risks with inflation.
Deputy Governor Andrew Hauser echoed that viewin comments last week, noting that inflation remains too high and the economy is operating close to capacity.
For now, markets are pricing in nearly 37 basis points of additional tightening this year. From an FX perspective, that keeps the Aussie relatively well supported, particularly against lower-yielding peers.
Positioning: rebuilding, but not euphoric
The latest data from the Commodity Futures Trading Commission (CFTC) show that non-commercial traders increased their net long exposure to roughly 33.2K contracts in the week to February 10. That takes positioning back to levels last seen in mid-December 2017, a notable improvement in sentiment.
This looks less like short covering and more like a deliberate rebuilding of directional exposure. Speculative accounts appear to be regaining conviction after a period of hesitation.
There is, however, a nuance: Open interest declined to around 247.2K contracts after three consecutive weekly increases. That suggests the rise in net longs came alongside some overall position trimming. In other words, confidence is improving, but broad participation is not yet accelerating.
From a positioning perspective, this feels like an early-stage re-risking phase rather than an overcrowded trade. Net longs are rising but still far from historical extremes. The drop in open interest, however, tempers that feeling slightly, pointing to improving conviction without a wave of aggressive fresh inflows.
What it means for AUD/USD
There is a clear sense that investors are dipping their toes back into the Aussie. Positioning is improving, and the tone feels more constructive, but this is not a crowded, one-way trade. It looks more like a steady rebuild of confidence rather than a burst of euphoria.
If price action keeps backing up that shift in sentiment, positioning could start to act as a tailwind and help extend the move. But if the rally stalls, the good news is that exposure is not extreme. That leaves room for a pullback without the kind of forced liquidation that tends to turn corrections into routs.
What to watch
Near term: Much of the direction will still come from the US side. Key data releases, tariff headlines and broader geopolitical noise are likely to shape the US Dollar’s path. At home, the next labour market report and the advance PMIs will be important checkpoints. The RBA Minutes on Tuesday should also shed more light on how firmly the Board is leaning hawkish.
Risks: The Aussie remains tightly linked to global risk appetite. Any sharp deterioration in sentiment, fresh concerns around China or a sustained rebound in the Greenback could quickly take the shine off recent gains and force a reassessment of the bullish narrative.
The technical landscape
In the daily chart, AUD/USD trades at 0.7074. The 55- and 100-day Simple Moving Averages (SMAs) rise above the 200-day one, reinforcing bullish momentum. All three SMAs trend higher, and price holds above them, with the 55-day SMA at 0.6783 offering dynamic support. The Relative Strength Index (14) stands near 65, signaling firm upside momentum without overbought conditions. Immediate resistance aligns at 0.7158, while support is seen at 0.6897.
Measured from the 0.6421 low to the 0.7147 high, the 23.6% retracement at 0.6976 offers initial support, with the 38.2% level at 0.6870 below. A sustained hold above these floors would keep the path open toward resistance at 0.7283, then at 0.7661.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line
AUD/USD is still very much a barometer of global risk appetite and the broader pulse of China’s economy. As long as those two pillars hold up, the pair should stay supported. A sustained break above the 0.7100 handle would not just be another incremental gain, it would strengthen the constructive narrative and give the bullish case a lot more credibility.
For now, a softer USD, steady domestic data, a clearly hawkish RBA and a broadly supportive, if not explosive, China backdrop keep risks skewed towards further upside rather than a meaningful reversal.
