The Aussie Dollar’s continuous rebound seems to have strengthened in the last few days, giving bulls back control and paving the way for AUD/USD to perhaps test the upper end of its annual range sooner rather than later. For now, the pair’s positive outlook should stay strong since inflation in Australia is still high and the RBA keeps its hawkish stance in place.
The Australian Dollar (AUD) remains on the positive footing on Thursday, allowing AUD/USD to clock gains for the fourth straight day, although a test or surpass of the key 0.7100 barrier still remains elusive.
Once again, the bearish tone in the US Dollar (USD) emerges as the exclusive catalyst for the pair’s price action, helped at the same time by the widespread improvement in the global sentiment following the two-week ceasefire clinched between the US and Iran and probable peace talks between Lebanon and Israel at some point in the near future.
Australia: firm footing, but early signs of fatigue
The Aussie is still strong because of Australia’s strong fundamentals, but the tale is starting to reveal some cracks.
The bigger picture hasn’t altered much: the economy is still doing better than most of its peers, inflation is still high on all fronts, and the Reserve Bank of Australia (RBA) keeps its cautious stance following recent interest rate hikes.
However, there are indicators that things are beginning to settle down: the last March prints of the Purchasing Managers’ Index (PMI) for both manufacturing and services fell below 50, which means that domestic activity is slowly losing steam. Trade, on the other hand, is still doing well following February’s A$5.686 billion surplus, the highest level since mid-2025.
In addition, growth remains robust, as the Gross Domestic Product (GDP) expanded by 0.8% QoQ in Q4 2025 and by 2.6% over the last year. The job situation is only slowly becoming better: February data saw the jobless rate rise to 4.3%, while the employment increased by nearly 49K.
But inflation is still the most salient issue. The latest Consumer Price Index (CPI) went up 3.7% from the previous year, the Trimmed Mean rose 3.3%, and the Weighted Median gained 3.5%. All in all, disinflation seems to be happening, but it’s taking longer than expected.
That said, the RBA thinks the work isn’t done yet, with policymakers thinking that inflation won’t reach the bank’s goal until mid-2028.
China: stabilising influence, not a growth driver
China is no longer helping the Aussie, but it is keeping things stable.
In Q4 2025, the Chinese economy grew by 4.5%. Furthermore, in the first two months of the year, Retail Sales jumped by 2.8% compared to the same time last year. Additionally, trade conditions are still generally good, although things are more complicated than they seem at first.
The National Bureau of Statistics (NBS) says that the official PMI data is still in contraction territory, while private surveys like RatingDog, on the other hand, revealed slight cooling in March, even if they are still in growth (>50).
Inflation patterns support that medium ground, as the February CPI went up 1.2% from last year, while Producer Prices stayed in deflation at -0.9% over the last twelve months. Following this, the People’s Bank of China (PBoC) may continue on hold, and the Loan Prime Rates (LPR) will stay the same at 3.00% and 3.50% for one year and five years at the next meeting.
RBA: tightening bias holds, timing under debate
The RBA made a very close decision at its most recent meeting, with a 5–4 vote in support of hiking its Official Cash Rate (OCR) by 25 basis points to 4.10%, showing how split the board has become.
The basic point, however, is still the same: there are still limits on capacity, and increased crude oil costs are likely to put further pressure on inflation in the short-term future. Governor Michele Bullock made it plain that the issue with inflation is still too much demand.
The argument has now moved on to time, as some rate setters appear to be leaning toward a pause so they can examine how recent acts have affected things in light of these outside forces.
The latest Minutes showed that this cautious attitude was still in place. They stressed how hard it is to predict what would happen with interest rates in the future. After two rate hikes this year, officials admitted that the present state of world affairs is making it tougher to make accurate predictions about the economy.
As for the markets, they still expect further tightening, with around 53 basis points of tightening expected in the next few months.
AUD positioning: longs building, divergence widening
For three weeks in a row, speculative net long holdings in the AUD have gone up. They hit around 81.5K contracts in the week ending on March 24. This is a big increase in positive mood, which supports the trend that is already in place.
The key issue here is the growing gap with price action, as AUD/USD has dropped gradually over that period, going from above 0.7100 to the sub-0.6900 region.
This expanding difference implies that investors are still optimistic about the medium future, perhaps because of domestic fundamentals, a hawkish central bank and the belief that China would stabilise, but there is no near-term confirmation from pricing.
Open interest has also increased, which means that new contracts are being added instead of old ones being cut. That makes the build-up much more convincing, even while the market isn’t delivering price wise.
The Aussie is becoming a crowded long in a market that doesn’t reward that position, which makes the chance of a quicker unwind higher if things go south. The present market position is starting to seem more like a possible vulnerability than a firm foundation since there isn’t a clear rationale for the currency to appreciate.
AUD/USD outlook: gains extending, risks still two-sided
Base case (with a hint of optimism):
Spot is currently trading within the 0.7000–0.7100 range, buoyed by easing geopolitical. However, the upward movement could begin to stall as it approaches the 0.7100 hurdle. This is contingent on the Greenback not gaining traction and the overall risk environment not deteriorating.
Bull case (needs follow-through):
To keep this rally going, the market needs to show some real belief. If risk appetite continues to improve, and we see either poor economic data from the US or declining US yields, the pair could break above 0.7100 with some conviction, setting the next milestone at 0.7200 while reinforcing the constructive outlook on the currency at the same time.
Bear case (still asymmetric risk):
However, the potential for a reversal should not be ruled out in case the current sentiment sours, the US Dollar picks up pace, or Chinese fundamentals remain stagnant. A drop below the 0.7000 yardstick would probably trigger a deeper retracement, potentially targeting the 0.6900 region.
That said, the rally is real, but conviction still needs to follow.
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. Later this week, housing statistics should provide us further information about how strong the economy is at home. A careful look at inflation is coming up for the US economy, and the CPI will probably be the major emphasis.
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 0.7084. The pair holds a bullish near-term bias as price consolidates above the 55-, 100- and 200-day simple moving averages (SMAs), with the short-term 55-day SMA at 0.7022 reinforcing underlying demand. Momentum is constructive, with the Relative Strength Index (14) hovering just below 60 while the Average Directional Index around 23 suggests an uptrend that is positive but not overly strong, leaving room for further gains as long as the spot holds above its key averages.
On the downside, initial support emerges at the 55-day SMA near 0.7022, followed closely by the 23.6% Fibonacci retracement at 0.7007, forming a first demand band. Below this area, a broader support zone is clustered between the 38.2% retracement at 0.6895, the 100-day SMA at 0.6855 and the horizontal line at 0.6833, while deeper pullbacks would look to the 50% and 61.8% retracements at 0.6804 and 0.6714 and the 200-day SMA at 0.6695. On the topside, immediate resistance is located at 0.7188, where a horizontal barrier aligns with the Fibonacci cycle high, ahead of the next caps at 0.7283 and the more distant 0.7661 level.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: constructive, but not fully convincing
The AUD still has a rather strong macro background, and the RBA isn’t changing its mind.
But it’s fair to argue that this isn’t a place where a long-term rally usually happens.
When people are willing to take more risks, the AUD usually does better. But as the market becomes more volatile, the USD generally takes back control. Overall, the larger bias is still positive, but there are still concerns in the near future.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
