AUD/USD remains firmly within its broader upward trend, even as fresh selling pressure creeps in on Wednesday. Any pullbacks, though, are likely to find support, with the Reserve Bank of Australia (RBA) still sending a distinctly hawkish signal after its latest rate move.
The Australian Dollar (AUD) struggles to build on Tuesday’s gains, slipping back and putting the psychologically important 0.7000 level to the test once again.
That dip comes as the US Dollar (USD) regains some momentum, with markets having largely digested Tuesday’s hawkish rate hike from the RBA and turning their attention back to the US side of the equation.
Australia: slowing, not stalling
Recent Australian data haven’t exactly set pulses racing, but they do reinforce a familiar story. The economy is cooling, yes, but it’s doing so in an orderly way. Momentum has eased, not collapsed, keeping the soft-landing narrative alive.
January Purchasing Managers’ Index (PMI) surveys fit neatly into that picture. Both Manufacturing and Services improved and stayed comfortably in expansion, printing at 52.3 and 56.3 respectively. Retail Sales are still holding up reasonably well, and while the trade surplus narrowed to A$2.936 billion in November, it remains firmly in positive territory.
Growth is moderating, but only gradually after the Gross Domestic Product (GDP) rose by 0.4% QoQ in Q3. On an annual basis, the economy expanded by 2.1%, exactly in line with RBA forecasts.
The labour market continues to punch above its weight: Employment surged by 65.2K in December, while the Unemployment Rate unexpectedly fell to 4.1% from 4.3%.
Inflation, however, remains the uncomfortable part of the story. December’s Consumer Price Index (CPI) surprised to the upside, with headline inflation climbing to 3.8% year-on-year from 3.4%. The trimmed mean rose to 3.3%, in line with consensus but slightly above the RBA’s own 3.2% projection. On a quarterly basis, trimmed mean inflation increased to 3.4% over the year to Q4, the highest since Q3 2024.
China: supportive, but lacking spark
China continues to provide a broadly supportive backdrop for the AUD, though without the kind of momentum that would fuel a sustained rally.
The economy grew at an annualised pace of 4.5% in the October–December quarter, with quarterly growth running at 1.2%. Retail Sales rose by 0.9% year-on-year in December. Solid enough, but hardly headline-grabbing.
More recent data suggest momentum is cooling again. Both the National Bureau of Statistics (NBS) Manufacturing PMI and the Non-Manufacturing PMI slipped back into contraction in January, printing at 49.3 and 49.4 respectively.
In the opposite direction, curiously, the Caixin Manufacturing index edged higher to 50.3, keeping it just in expansion territory, while the Services gauge ticked up to 52.3.
Trade was one of the clearer bright spots, as 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 remains a mixed bag. Consumer prices were unchanged at 0.8% year-on-year in December, while producer prices stayed firmly negative at -1.9%, a reminder that deflationary pressures haven’t fully disappeared.
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 idea that any policy support will be gradual rather than forceful.
RBA: hawkish tilt, no rush to unwind
The RBA lifted the cash rate to 3.85% in a clearly hawkish move that broadly matched expectations. Upgrades to both growth and inflation forecasts point to firmer momentum in activity and price pressures that are becoming more widespread. Core inflation is now expected to stay above the 2–3% target for most of the forecast horizon, strengthening the case for policy restraint.
The key takeaway is that inflation is increasingly demand-driven. Stronger-than-expected private demand was cited 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 tightening cycle, but the signal was unmistakable: policymakers are uncomfortable with the upward drift in inflation.
For markets, the trade-off is clear. Rates are likely to stay restrictive for longer, limiting the scope for near-term easing. From an FX perspective, that supports the AUD at the margin, particularly against low-yielding currencies — even if the RBA’s focus on full employment reduces the odds of an aggressive hiking phase.
Following the decision, markets are now pricing in close to 40 basis points of tightening by year-end.
Positioning: Signs that the mood around AUD is changing
The latest positioning data show that the worst of the negative mood around the AUD may be over. According to the Commodity Futures Trading Commission (CFTC), non-comercial players have gone back to a net long position for the first time since early December 2024. That said, net longs rose to just over 7.1K contracts in the week ending January 27.
Open interest has also risen to levels not seen in weeks, with more than 252K contracts, which suggests that traders are starting to get back into the market. Still, this looks more like tentative positioning than a full-throated bet on a long-term rise in the AUD, at least for now.
What matters next
Near term: Traders are paying more attention to the US again. Incoming data, news about tariffs, and the usual geopolitical noise are likely to move the USD. The AUD’s main swing factors are still the labour market and inflation numbers in Australia and what they mean for the RBA’s next move.
Risks: The AUD is still very sensitive to how people feel about risk around the world. A sudden change in risk appetite, new worries about China, or an unexpected rise in the USD could quickly erase recent gains.
Technical landscape
In case bulls push harder, AUD/USD should meet its next up barrier at the 2026 ceiling at 0.7093 (January 29) before the 2023 high at 0.7157 (February 2).
In contrast, a breach below the February base at 0.6908 (February 2) could expose a deeper drop to the transitory 55-day SMA at 0.6693, which precedes the 2026 bottom at 0.6663 (January 9). Further south emerges another interim support at the 100-day SMA at 0.6628, ahead of the more important 200-day SMA at 0.6563 and the November valley at 0.6421 (November 21).
In addition, momentum indicators continue to favour extra gains, although the pair’s current overbought condition warns of a potential corrective move lying ahead. Indeed, the Relative Strength Index (RSI) flirts with the 72 level, while the Average Directional Index (ADX) around 50 keeps pointing to a strong trend.
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Bottom line
AUD/USD remains closely tied to global risk sentiment and China’s economic direction. A sustained break above 0.7000 would help cement a more convincing bullish signal.
For now, a softer USD, steady, if unspectacular, domestic data, an RBA still leaning hawkish, and modest support from China keep the bias tilted towards further upside rather than a deeper reversal.
