The Aussie Dollar keeps its robust recovery well in place, opening the door for AUD/USD to a potential challenge of the YTD peaks in levels just shy of 0.7200 the figure recorded in early March. For now, the pair’s constructive tone should remain unchanged, reinforced by high inflation at home and the RBA’s hawkish stance
The Australian Dollar (AUD) maintains its bullish attitude for yet another day on Wednesday, prompting AUD/USD to rapidly clear the 0.7100 hurdle with certain conviction and allowing for the continuation of the rally at least in the very short term.
Indeed, spot advances for the third day in a row on the back of the US Dollar’s (USD) inconclusive price action, as investors continue to pencil in the likelihood of a solution to the Middle East crisis in the relatively short-term horizon.
That said, the US Dollar Index (DXY) keeps navigating the area of multi-week lows, with the 98.00 region still holding the downside.
Australia: still holding up, but starting to lose some steam
Australia’s overall economy is still doing pretty well, thanks to strong domestic demand, but there are clearer signs that the economy is starting to slow down.
At a broad level, the story hasn’t shifted dramatically: the economy is still outperforming many of its peers, inflation remains sticky in key areas, and the Reserve Bank of Australia (RBA) continues to lean on a cautious, data-dependent approach following its tightening cycle.
That said, early signs of cooling are becoming harder to ignore after the March Purchasing Managers’ Index (PMI) readings for both manufacturing and services dipped below the 50 threshold, signalling a gradual slowdown in business activity.
There are still pockets of strength, however, as the February’s trade surplus widened to A$5.686 billion, the strongest since mid-2025. In addition, growth also remains firm, as the Gross Domestic Product (GDP) expanded by 0.8% QoQ in late 2025 and 2.6% from a year earlier. The labour market is still holding up, although not as tightly as before, with the Unemployment Rate edging up to 4.3% in February despite a near 49K increase in the Employment Change.
Additionally, inflation remains the key challenge after the latest Consumer Price Index (CPI) gained 3.7% YoY, the Trimmed Mean rose 3.3% YoY and the Weighted Median advanced 3.5% over the last twelve months. Disinflation appears underway, but progress is proving slower than policymakers would like.
All in, the central bank is not ready to call it done: officials continue to signal that inflation may only return to target around mid-2028, reinforcing the need for patience.
China: steady, but no longer leading the charge
The Chinese economy has become more of a stabiliser for Australian fundamentals rather than a real growth engine.
According to the latest data, the economy expanded by 4.5% YoY in Q4, while Retail Sales increased at an annualised 2.8% during the first two months of the current year. That said, the momentum is not what it used to be. Signs of softening are emerging, particularly on the external side, where the trade surplus narrowed sharply in March to just over $51 billion from nearly $91 billion previously.
That sense of a mixed picture also comes through in business surveys after the National Bureau of Statistics (NBS) said that the economy is still shrinking, but private measures like RatingDog showed that it is still expanding, though at a slower rate.
Furthermore, inflation reinforces that middle-ground narrative, as the CPI edged up to 1.2% YoY in February, but Producer Prices remained stuck in deflation, down 0.9% over the year.
All in, China no longer looks like a strong growth driver. Instead, it is acting more as a steadying force. Against that backdrop, the People’s Bank of China (PBoC) is expected to stay on hold, with Loan Prime Rates (LPR) likely unchanged at 3.00% and 3.50% at the upcoming meeting.
RBA: still leaning hawkish, but timing is the key debate
The RBA’s latest decision was a close call, with a 5–4 vote in favour of a 25 basis points hike, taking the Official Cash Rate (OCR) to 4.10%. That narrow split underlines just how divided the board has become.
The broader message, however, hasn’t really shifted, as capacity constraints remain a concern, and higher crude oil prices are expected to keep near-term inflation pressures elevated. Governor Michele Bullock also made it clear that demand is still running stronger than the bank would like.
Where things are starting to shift is on timing after some policymakers argued for a pause, preferring to reassess the outlook given the uncertain global backdrop and the lagged effects of previous rate increases.
That more cautious tone also came through in the Minutes, which suggested that the outlook has become increasingly difficult to gauge, while global developments, particularly geopolitics, are adding another layer of uncertainty to the policy path.
For now, markets are still leaning towards further tightening, pencilling in just over 54 basis points of additional hikes by year-end.
AUD positioning: still long, but starting to fade
The Aussie remains heavily skewed to the long side, although the latest data for the week ending April 7 point to some early trimming. Non-commercial net longs eased to around 70K contracts, suggesting investors are beginning to take some chips off the table after the steady build-up in recent weeks.
Price action, however, is sending a slightly different signal. AUD/USD drifted towards the 0.6970 area over the same period, extending the disconnect between positioning and spot. In other words, sentiment held up, but price failed to follow through.
Extra data saw open interest softening, pointing to unwinding of positions rather than fresh bearish bets. At this point, this development seems more like a gradual scaling back of exposure than a shift in direction.
On this, AUD now looks somewhat exposed: unless the broader macro picture improves, the risk of further long liquidation remains on the table, particularly in case of bouts of strength in the Greenback.
AUD/USD outlook: the rally is there, but conviction is still lacking
Base case, cautiously constructive:
The pair has recently broken above the 0.7100 barrier, although it keeps looking at the geopolitical backdrop. However, the upward movement could begin to stall in case the surpassing of 0.7100 fails to gather sustainable pace. The outlook depends on the US dollar staying weak and the overall risk environment not shifting dramatically.
Bull case, though not yet proven:
For this rally to persist, the market needs to show real strength. If risk appetite continues to improve, then spot could break above 0.7100 with some conviction, setting the next milestone at 0.7200 while reinforcing the constructive outlook at the same time.
Bear case: risks still there:
However, the potential for a reversal should not be ruled out in case the current sentiment sours, the Greenback picks up pace, or Chinese fundamentals deteriorate. A drop below the 0.7000 yardstick would probably trigger a deeper retracement, potentially targeting the 0.6900 region.
The rally is real, but it still feels fragile. Markets need stronger conviction to keep it going.
What matters for AUD/USD now
Near term: the US Dollar, general risk mood, and any new geopolitical news will still be the major drivers. On Thursday, all the attention is expected to be on the release of the Australian labour market report and crucial Chinese data, including GDP figures.
Risks: a slowdown in the Chinese economy, a more aggressive Federal Reserve (Fed), or any change in the RBA’s position may quickly make the Aussie unstable.
Technical landscape
In the daily chart, AUD/USD trades at 0.7167, maintaining a bullish near-term bias as spot holds comfortably above the 55-, 100- and 200-day simple moving averages (SMAs) clustered between roughly 0.70 and 0.67. The pair is pressing into a key topside barrier at the Fibonacci swing high and horizontal resistance around 0.7188, while the Relative Strength Index (14) at 65 suggests firm positive momentum edging toward overbought conditions, even as the Average Directional Index (14) near 20 hints that the broader trend strength remains modest.
On the upside, immediate resistance is located at 0.7188; a daily close above this level would expose the next hurdles at 0.7283 and then 0.7661. On the downside, initial support is seen at the 55-day SMA near 0.7033, reinforced by the 23.6% Fibonacci retracement at 0.7007, with further demand anticipated around the 38.2% retracement at 0.6895 and the 100-day SMA at 0.6880; a deeper pullback could extend toward the 0.6833 horizontal level and the dense support band formed by the 50.0% and 61.8% retracements and the 200-day SMA between roughly 0.6804 and 0.6707.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: constructive, but not quite there yet
The overall picture for the Australian Dollar remains strong, and the RBA isn’t likely to change its position in the near future, which should maintain a floor against occasional bouts of selling pressure.
Furthermore, the Australian currency thrives when investors are feeling confident, but when things get shaky, the Greenback is often the one regaining its footing. Consequently, despite a generally favourable long-term view, the immediate future is still somewhat unpredictable.
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.
