The Australian Dollar (AUD) weakens further in quite a negative start to the new trading week, sending AUD/USD to just pips away from the key 0.7100 contention zone, where some initial support seems to have turned up for now.
Indeed, initial increasing selling pressure dragged spot to fresh four-week lows, although some late loss of traction in the US Dollar (USD) allowed for some regaining of composure and trimming of part of those losses.
Meanwhile, AUD/USD has trended higher since early July, supported by the Reserve Bank of Australia’s (RBA) hawkish policy bias and domestic inflation that remains above the bank’s target.
Australia’s data point to slower but resilient growth
Australia’s economy continues to compare favourably with many of its G10 peers, supported by domestic demand and positive economic growth. Persistent inflation also supports the RBA’s cautious, data-dependent policy stance.
Business activity remained in expansionary territory in August after final Purchasing Managers’ Index (PMI) readings showed the Manufacturing index unchanged at 52.0, while the Services index edged a tad down to 53.2.
Trade data provided another positive signal: Australia recorded an A$1.923 billion surplus in July, adding to the A$2.341 billion surplus registered in June.
Growth figures were less encouraging, however. Indeed, the Gross Domestic Product (GDP) expanded by 0.4% QoQ in the second quarter of 2026, up from 0.3%, while annual growth came in at 2.1%, down from the previous 2.5% yearly expansion.
The labour market also showed signs of losing momentum in July. The Unemployment Rate rose to 4.5%, while Employment Change declined by 15.8K following a revised increase of 80.3K in the previous month.
Inflation remains the main constraint after July data showed price pressures running well above the RBA’s 2%-3% target band, suggesting that the return to target could remain uneven and prolonged. That said, the headline inflation eased to 3.5% in July (from 3.8%), while underlying price pressures tracked by the Trimmed Mean held steady at 3.6%.
The Melbourne Institute’s Consumer Inflation Expectations measure reinforced that view, rising to 4.9% in August from 4.7%.
The figures leave the RBA’s inflation task incomplete. Policymakers expect inflation to return to target only in early 2028, keeping the emphasis on patience rather than an imminent policy pivot.
China stabilises but fails to add momentum
China is providing stability for the Australian economy, but not the growth impulse that has supported the Australian Dollar during previous expansions.
The Chinese economy grew by 4.3% YoY in the April-June period, while Retail Sales rose by only 0.6% in the year to July, and the Industrial Production growth slowed to 4.5% over the last twelve months.
Trade figures were stronger. China’s surplus widened to $119.1 billion in July from $112.5 billion in June, supported by decent increases in both imports and exports.
Business surveys presented a mixed picture: the National Bureau of Statistics reported that the Manufacturing PMI improved to 49.8 in August from 49.2, while the Services PMI remained unchanged at 49.0. On the other hand, private measures like RatingDog remain in expansionary territory, with Manufacturing at 51.5 (from 50.9) and Services at 51.4 (from 50.4).
Disinflationary pressures seem to have taken a breather in August, with the CPI gaining 0.8% YoY, up from 0.5%, while prices rose by 0.4% on a monthly basis. Producer Prices rose by 3.8% over the previous twelve months, down from the 3.5% increase recorded in the previous month.
The People’s Bank of China (PBoC) left its Loan Prime Rates unchanged at its latest event, maintaining the one-year rate at 3.00% and the five-year rate at 3.50%.
China is therefore neither providing a major boost nor creating a significant drag. Unless the data reveal a clearer acceleration or deterioration, its influence on AUD/USD is likely to remain limited.
RBA retains a tightening bias
The RBA left its Official Cash Rate (OCR) unchanged on August 11 and retained a clear tightening bias, citing above-target inflation and upside risks to the outlook. The decision to hold rates was unanimous.
The Minutes maintained that cautious but hawkish stance. Several officials warned that inflation risks could materialise, which would leave the Board prepared to raise rates. Potential sources of pressure include increased investment in data centres, cost pass-through and higher energy prices.
Policymakers discussed a 25-basis-point increase but concluded that the current policy setting was sufficiently restrictive. They also acknowledged more balanced risks, including falling house prices and the possibility that inflation could decline without causing significant damage to employment.
Fresh GDP, labour-market and inflation figures were expected before the September meeting, leaving policy dependent on the incoming data.
Markets are pricing in nearly 38 basis points of tightening by year-end and expect the RBA to hike the OCR by 25 basis points at its September 29 meeting.
AUD/USD outlook hinges on 0.7200
Base case
The medium-term outlook remains tilted towards further gains, as long as AUD/USD stays above its 200-day Simple Moving Average (SMA), which is currently around the psychological 0.7000 threshold.
Further progress will still require a quite strong catalyst. Without a sustained improvement in risk appetite or continued US Dollar weakness, upward momentum could begin to fade.
Bull case
A stronger risk-on environment and a convincing break above 0.7200 would bring the 2026 high near 0.7280 into view.
Beyond that level, resistance emerges at the 0.7300 round level, followed by the 2022 ceiling at 0.7593.
Bear case
A deterioration in global risk sentiment, renewed strength in the Green back or further weakness in Chinese data could spark fresh selling interest in spot.
Initial support is located at the September floor at 0.7108 (September 14), seconded by the provisional 100-day and 55-day SMAs near 0.7080 and 0.7050, respectively. The more important level remains the 200-day SMA.
A breach below that area would weaken the broader constructive structure and increase the risk of a deeper short-term decline.
Shorts retreat; conviction cracks
According to the Commodity Futures Trading Commission (CFTC), AUD bearish positioning eased further in the week ending September 8. Indeed, net speculative positioning improved by around 4.5K contracts, reaching nearly 35K contracts. Furthermore, the 4-week change increased by more than 4.3K contracts, signalling a clear improvement in short-term momentum.
Open interest also surged sharply, up nearly 63.8K contracts to about 455.5K contracts, a rise of about 16%. The move points to a combination of short covering and new long exposure rather than a simple pullback from the market, with net shorts declining even as participation grew.
Speculative exposure improved to -7.7%, though its percentile moved up to 84.2. This means that bearish AUD exposure remains historically elevated even with the recent improvement. The net-position percentile also rose to 72.4, indicating that positioning is becoming less bearish but is not yet close to neutral.
Overall, the Aussie’s bearish bias is losing impulse, and the sharp rise in open interest strengthens the significance of the latest improvement. However, the elevated exposure percentile shows that short positions remain substantial. For now, the data point to an ongoing unwinding of bearish conviction rather than a fully confirmed bullish reversal.
What’s next for the Aussie
US Dollar dynamics, global risk sentiment and geopolitical developments remain the main near-term drivers of AUD/USD.
Meanwhile, market participants will be watching the release of key data from China amid an otherwise empty docket in Oz.
Beyond the immediate releases, the main risks include a sharper slowdown in China, a persistently cautious Federal Reserve, a deterioration in investor risk appetite or a change in the RBA’s current policy stance. Any of these developments could quickly alter the outlook for the Australian Dollar.
Technical analysis
In the daily chart, AUD/USD trades at 0.7143, holding a bullish near-term bias as it remains above the 55-, 100- and 200-day simple moving averages (SMAs) clustered between 0.7057 and 0.7080. The pair is consolidating after its recent advance, with the Relative Strength Index (RSI) easing back toward the 50 area, hinting at a loss of immediate momentum rather than a clear reversal, while the Average Directional Index (ADX) near 21 points to a moderate, non-trending environment.
On the downside, initial support is seen at the horizontal level around 0.7079, reinforced by the nearby 100-day SMA at 0.7080 and the 55-day SMA at 0.7057, ahead of deeper demand at 0.7004 from the 200-day SMA and the broader structural floor at 0.6833. On the topside, AUD/USD faces a dense resistance band just above the market, starting at 0.7278 and 0.7283, with a more distant barrier at 0.7661; a clear break above the 0.7280 area would open the way for a continuation of the broader uptrend.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
External risks make further gains harder to sustain
The broader picture continues to favour the AUD.
Australia’s domestic backdrop compares favourably with that of many advanced economies, and the RBA is in no hurry to abandon its hawkish bias.
The recovery nevertheless remains vulnerable to renewed strength in the Greenback, persistent geopolitical uncertainty and a Chinese economy that is stabilising rather than accelerating.
The 200-day SMA remains the key level for the medium-term outlook. Holding above it preserves the constructive structure, but a convincing break above 0.7200 will probably require a more convincing sell-off of the Greenback, stronger demand for risk-sensitive assets, additional cooling in US inflation or a (less-likely) dovish shift from the Fed.
Until then, external forces are likely to exert more influence over the Australian Dollar than domestic fundamentals.
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.
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