The outlook for the Australian Dollar (AUD) remains constructive for the time being, reinforced by persistently elevated inflation in Oz and the hawkish tilt from the RBA. This combination is expected to pave the way for extra gains in AUD/USD as well as put a floor to occasional sell-offs.
The resurgence of the buying interest in the US Dollar (USD) weighs on the risk-associated universe, prompting the Australian Dollar (AUD) to give away part of its recent gains and spark a corrective move in AUD/USD.
Indeed, the pair breaks below the 0.7100 support, setting aside two daily advances in a row and meeting some contention in the mid-0.7000s for now.
Meanwhile, persistent geopolitical concerns in the Middle East, coupled with steady caution ahead of the Fed’s interest rate decision, keep the demand for the risky assets depressed.
Australia: resilient, but still running too hot
Australia’s macro backdrop continues to provide a solid floor for the Aussie, but it is not cooling fast enough to fully reassure the Reserve Bank of Australia (RBA).
Growth remains resilient, and inflation is still proving sticky, keeping the RBA on a clearly hawkish footing. For FX markets, that combination continues to act as a meaningful cushion under the AUD.
Recent data reinforce that story: February’s Purchasing Managers’ Index (PMI) readings stayed comfortably in expansion, while consumer activity is holding up better than expected, with resilient retail spending and a trade surplus of A$2.631 billion in January.
More broadly, momentum remains firm after the Gross Domestic Product (GDP) grew by 0.8% QoQ in Q4 and 2.6% YoY, while the labour market is only easing gradually, with unemployment steady at 4.1%.
The real issue is inflation. Indeed, the Consumer Price Index (CPI) came in at 3.8% YoY, with the trimmed mean at 3.4%, showing that disinflation is happening, but too slowly.
From the RBA’s perspective, the job is not done. Inflation is expected to peak around Q2 2026 and only return to target by mid-2028.
China: stabilizing, but not picking up speed
China’s impact on Australia’s economic outlook has clearly changed; it’s gone from being a major growth driver to a stabilising influence.
The latest data shows steady, if not particularly impressive, progress. Growth was 4.5% in Q4 2025, retail sales climbed 2.8% year-on-year in January and February, and trade is holding steady, with a significant surplus bolstered by strong export and import activity.
Business surveys, though, paint a more nuanced picture. The official Purchasing Managers’ Index (PMI) remains in contraction, yet private surveys persistently signal growth, suggesting a recovery that isn’t quite uniform.
Inflation is holding steady. The Consumer Price Index (CPI) has barely moved, and the Producer Price Index (PPI) is still experiencing deflation.
In that context, the People’s Bank of China (PBoC) has kept its Loan Prime Rates (LPR) unchanged.
For the Australian currency, the message is fairly straightforward: China is no longer a drag, but it is not providing a strong tailwind either.
RBA: restrictive, and in no rush to pivot
The RBA delivered a narrow 5–4 decision to hike the Official Cash Rate (OCR) to 4.10% on Tuesday, underlining how finely balanced the policy debate has become.
The statement underscored persistent capacity limitations, a consequence of robust demand, and the potential for inflation and inflation expectations to climb. In addition, escalating oil prices were also identified as a short-term threat to the overall inflation rate.
In her press conference, Governor Michele Bullock emphasised that the main problem continues to be excess demand. Furthermore, the recent oil shock complicates the outlook, adding upward pressure on inflation in the near term.
Importantly, the debate within the Board is no longer about direction but about timing. Those voting for a pause preferred to assess how external developments and higher energy prices feed through to growth and inflation.
Markets are now leaning towards a pause in May, while still pricing in around 43 basis points of additional tightening by year-end.
Positioning: trimming, not reversing
Latest Commodity Futures Trading Commission (CFTC) data show speculative positioning in the AUD softened in the week to March 10.
Non-commercial traders trimmed net long positions to around 54.2K contracts, signalling a reduction in bullish exposure.
At the same time, open interest increased to nearly 316K contracts, pointing to fresh participation in the market.
This blend of actions hints at a shift in strategy, not a complete reversal. Long positions are being reduced, even as fresh ones are being opened.
What’s next for AUD/USD
Near term: spot remains heavily influenced by the Greenback’s performance and the broader market’s willingness to take risks. On the domestic front, attention turns to the imminent jobs report expected oon Thursday.
Risks: the AUD tends to underperform when global risk appetite deteriorates, when China slows, or when the US Dollar strengthens sharply.
Technical landscape
In the daily chart, AUD/USD trades at 0.7078. The near-term bias is mildly bullish as spot holds well above the 55-, 100- and 200-day Simple Moving Averages (SMAs), which all trend higher and frame a medium-term uptrend. Price consolidates just under the 23.6% Fibonacci retracement at 0.6976 measured from the 0.6421 low to the 0.7147 high, keeping the latest pullback shallow within the broader advance. The Relative Strength Index (RSI) around 53 stays above its midline, indicating positive but moderate momentum, while the fading Average Directional Index (ADX) near 21 signals a trend that is losing strength and encourages a range-bound bullish stance rather than an impulsive breakout view.
Immediate resistance is seen at the recent horizontal cap at 0.7158, followed by the Fibonacci swing high at 0.7147 and the next chart barrier at 0.7283. A daily close above this band would open the way to 0.7661, where a major horizontal level aligns as a medium-term target. On the downside, initial support emerges at 0.6976, the 23.6% retracement that protects the more important horizontal floor at 0.6897. Below there, the 38.2% retracement at 0.6870 and the clustered supports around 0.6660–0.6593 coincide with rising SMAs, and a break through this zone would be needed to negate the current bullish bias and expose the lower base near 0.6414–0.6373.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: supported, but conditional
Australia’s solid domestic backdrop and a still-restrictive RBA continue to underpin the AUD.
That said, the currency remains highly sensitive to global developments. When risk sentiment holds, the Aussie performs. When volatility rises, the US Dollar tends to take back control.
For now, the bias remains supportive, but far from unconditional.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
