The Australian Dollar (AUD) keeps its positive outlook well in place for now. 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 in the upper end of its multi-year range. For now, that combination leaves the door open to further upside in the near term.
The Australian Dollar faces some renewed downside pressure on turnaround Tuesday, with AUD/USD rapidly leaving behind Monday’s positive performance and refocusing on the downside, clinching at the same time multi-day troughs in the 0.7050-0.7040 band.
The pair’s pullback follows further appreciation of the US Dollar (USD), as investors remain prudent ahead of the release of the FOMC Minutes and key hard data later in the week.
Australia, easing, not unravelling
Recent data suggest Australian economic momentum has softened a tad rather than collapsed, keeping the “soft landing” narrative intact.
That said, January Purchasing Managers’ Index (PMI) surveys remained in expansion, with Manufacturing at 52.3 and Services at 56.3, while Retail Sales are holding up and the trade surplus widened to A$3.373 billion at the end of 2025. In addition, the Gross Domestic Product (GDP) expanded 0.4% QoQ in Q3, with annual growth at 2.1%, in line with RBA projections.
On a brighter side, the labour market continues to impress: Employment Change jumped by 65.2K in December and the Unemployment Rate fell to 4.1%. Investors’ attention now shifts to the January jobs report expected later in the week.
However, inflation remains the sticky piece after the Consumer Price Index (CPI) rose to 3.8% YoY in December, while trimmed mean printed at 3.3% YoY and 3.4% on a quarterly basis in Q4. Still around inflation, consumer inflation expectations tracked by the Melbourne Institute climbed to 5.0% in February, the highest since August 2023.
On a separate note, housing credit is also firm, with Home Loans up 10.6% QoQ in Q4 and Investment Lending rising 7.9%, a sign that financial conditions are not especially tight.
China, supportive but not decisive
China continues to offer a steady cushion for the Aussie, though not a powerful catalyst: growth expanded 4.5% YoY in Q4 and 1.2% inter-quarter, while Retail Sales rose 0.9% in the year to December.
January Purchasing Managers’ Index (PMI) readings paint a mixed picture: the official Manufacturing and Non-Manufacturing gauges slipped back into contraction at 49.3 and 49.4, respectively, while Caixin Manufacturing and Services held up at 50.3 and 52.3. The trade surplus widened sharply to $114.1 billion in December, but inflation signals remain soft, with CPI at 0.2% YoY and Producer Prices down 1.4% YoY.
The People’s Bank of China (PBoC) kept the one-year and five-year Loan Prime Rates (LPR) unchanged at 3.00% and 3.50%, reinforcing a gradual support stance.
RBA, restrictive and staying vigilant
The RBA lifted the Official Cash Rate (OCR) to 3.85% with a clear hawkish tilt. Updated forecasts show inflation staying above the 2 to 3% band for much of the horizon, reinforcing the case for restrictive policy.
The Minutes confirmed that, without the latest hike, inflation would likely have remained above target for too long. Policymakers judged that risks had shifted materially, strengthening the case to tighten. Still, they stopped short of pre committing to further moves. The path for the cash rate remains data dependent.
Markets are pricing in just over 32 basis points of additional tightening this year, keeping the Aussie relatively supported from an FX perspective.
Positioning, rebuilding conviction
Commodity Futures Trading Commission (CFTC) data show non commercial traders increased net longs to around 33.2K contracts in the week to February 10, the strongest since December 2017. This looks more like fresh rebuilding than short covering.
Open interest slipped to roughly 247.2K contracts, suggesting improving conviction but not yet broad participation. Positioning feels constructive but far from stretched.
What it means for AUD/USD
Investors appear to be cautiously re-engaging with the Aussie. The trade is not crowded, and positioning leaves room for further upside if sentiment improves.
What to watch
Near term: For now, the Greenback is still calling the shots with upcoming data releases, tariff headlines and the usual geopolitical chatter all capable of nudging the pair one way or the other. Domestically, the next labour market report and the advance PMIs readings will act as important sense checks on how the economy is really performing.
Risks: The AUD remains a classic high beta currency, closely tied to global risk appetite. If sentiment turns, China concerns resurface or the USD extends its advance, the recent upside could unwind fairly quickly. In that scenario, the bullish narrative would need a proper reassessment rather than being carried forward on autopilot.
Technical landscape
In the daily chart, AUD/USD trades at 0.7052. The 55-day Simple Moving Average (SMA) climbs above the 100- and 200-day SMAs, reinforcing a bullish structure. All three averages trend higher, and the pair holds above them. The 55-day SMA at 0.6792 offers nearby dynamic support. The Relative Strength Index (RSI) prints 62, maintaining a positive bias, though momentum has cooled from recent extremes. Immediate resistance aligns at 0.7158, followed by 0.7283.
Measured from the 0.6421 low to the 0.7147 high, the 23.6% retracement stands at 0.6976 and offers first support. The 38.2% retracement at 0.6870 sits below as a secondary cushion. Holding above these supports would preserve the bullish bias, while a close below the first level would warn of a deeper setback.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line
The macro backdrop, a still-restrictive RBA, improving positioning and a steady China pulse keep risks tilted to the upside for AUD/USD. As long as global risk appetite and the US Dollar cooperate, dips are likely to find buyers rather than trigger a deeper reversal.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
