The Aussie Dollar continues to swing in line with the alternating risk appetite trends, all in response to a volatile geopolitical scenario in the Middle East. In the meantime, persistently elevated domestic inflation and the RBA’s cautious stance should keep the constructive outlook for the Aussie well in place for now.
The Australian Dollar (AUD) comes under renewed selling pressure, prompting AUD/USD to leave behind two consecutive daily advances and refocus on the downside once again on Thursday.
The fresh offered bias in spot follows the resurgence of tensions in the Middle East, all after President Trump failed to assuage ongoing concerns in his speech late on Wednesday, impacting the sentiment surrounding the risk-associated galaxy.
Australia: still solid, but starting to lose a bit of shine
Australia still appears to be in good shape, which is maintaining a stable floor for the Aussie. But once you look a bit closer, it’s clear the story is beginning to lose some momentum.
The overall mix hasn’t really changed; growth is holding up, inflation is still elevated, and the Reserve Bank of Australia (RBA) remains on the hawkish side. That combination continues to support the AUD.
That said, the first signs of cooling are there after the final March Purchasing Managers’ Index (PMI) fell into contraction at 49.8, while the services print is expected around 46.6, all pointing to a gradual slowdown in activity. Trade is still doing its part, with a A$5.686 billion surplus in February, the strongest since July 2025.
At a broader level, the economy is still expanding at a decent pace. Gross Domestic Product (GDP) rose 0.8% QoQ in Q4 and 2.6% YoY, while the labour market is only easing slowly, with unemployment at 4.3% and Employment Change still showing a solid gain of 48.9K.
Inflation, however, remains the sticking point. The latest data show only modest progress, with the Consumer Price Index (CPI) at 3.7% YoY, the Trimmed Mean at 3.3%, and the Weighted Median at 3.5%. Disinflation is happening, but it’s not moving fast enough to make the RBA comfortable.
The central bank believes that there is still much work to be done. Inflation is not expected to return to target until mid-2028, so the pressure remains firmly in place.
China: steady in the background, but not doing the heavy lifting
China’s role in the Aussie story has clearly shifted. It’s no longer the main growth engine, more of a stabiliser quietly sitting in the background.
The big stats are good: the economy grew by 4.5% in the fourth quarter of 2025, retail sales were up 2.8% from a year earlier, and trade conditions are generally good. But things are more complicated below.
Official PMI data from the National Bureau of Statistics (NBS) remain in contraction territory, while private surveys like RatingDog continue to point to expansion.
Inflation adds to that “in-between” picture. The CPI rose 1.2% YoY, while the Producer Price Index (PPI) is still in deflation at -0.9% YoY. That gives the People’s Bank of China (PBoC) room to stay on hold, keeping the Loan Prime Rates (LPR) unchanged.
For the AUD, the takeaway is quite straightforward: China is no longer weighing on it, but it’s not really giving it a push either.
RBA: clear stance, but plenty of uncertainty on timing
The RBA’s latest decision says a lot about where things stand. A tight 5–4 vote to lift the Official Cash Rate (OCR) to 4.10% highlights just how finely balanced the situation is.
The core message hasn’t really changed. Capacity constraints are still there, and higher oil prices could add to inflation in the near term. Governor Michele Bullock was clear, excess demand remains the key issue.
Where things get more uncertain is timing. Some policymakers would rather pause and see how external shocks filter through the economy.
The Minutes reinforced that point. After two hikes this year, the Board essentially admitted there’s limited visibility on where rates go next, especially with geopolitics clouding the outlook.
Markets, however, are still leaning toward tightening, with around 59 basis points priced in by year end.
Positioning: leaning long, but without strong conviction
Positioning is starting to look more constructive, but it’s not exactly convincing.
The latest data from the Commodity Futures Trading Commission (CFTC) show net longs building above 70K contracts. However, the price action is indicating a different trend, as AUD/USD has dropped from above 0.7100 to below 0.7000.
That divergence stands out.
It suggests investors are positioning for a medium-term AUD story but without much confidence in the short term. At the same time, open interest has eased, hinting that the buildup in longs is not particularly strong.
What it means: a setup that could turn quickly
This is where things get a bit uncomfortable.
When positioning builds but price doesn’t follow, the risk of a squeeze increases. If the US Dollar continues to strengthen or if the macro backdrop deteriorates, those long positions could unwind quite quickly.
FX view: decent foundation, but short-term fragility
The AUD still has a strong macro background, but the way things are set up right now makes it vulnerable in the short term. Without clearer upward follow-through, positioning might become a headwind instead of support, particularly because market players are still being cautious.
So, what’s next?
The two are currently locked around 0.7050 and are trading with a lower tone since the USD is still strong and geopolitics are still in the headlines.
If the general mood becomes better or the Greenback loses steam, spot might go back to the level above 0.7100, which would confirm the long position.
A higher US dollar and weaker indications from China might cause a squeeze, which could push the price up to the 0.6800 level.
What to watch: it’s still all about the Dollar
In the near term, it’s all about US Dollar dynamics, risk sentiment, and geopolitical headlines. On the domestic side, China’s RatingDog Services PMI could add some volatility, especially in thinner Good Friday conditions.
Risks remain tilted to the downside, particularly if China slows further, oil prices move higher, or the Fed shifts its stance.
Technical corner
In the daily chart, AUD/USD trades at 0.6912. The near-term bias is mildly bullish as spot holds above the 100-day and 200-day Simple Moving Averages (SMAs), which all trend higher and frame an underlying uptrend. Price is consolidating just above the 38.2% Fibonacci retracement around 0.6870, measured from the 0.6421 low to the 0.7147 high. The Relative Strength Index (RSI) at 43 stays below the 50 midline, indicating subdued upside momentum but not outright bearish pressure, while the Average Directional Index (ADX) near 26 points to a modest, fading trend.
Immediate support emerges at 0.6833, reinforced by the nearby 50% retracement at 0.6784, with a break exposing the 61.8% retracement at 0.6698 as the next downside level. Below there emerges the key 200-day SMA at 0.6685, prior to 0.6660 and 0.6593 . On the upside, initial resistance stands at the 23.6% retracement at 0.6975, followed by the 55-day SMA at 0.7000, 0.7147 and the horizontal cap at 0.7158. A daily close above 0.7158 would open the way toward 0.7283, with 0.7661 as a more distant bullish target.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: supported, but increasingly vulnerable
The Aussie still has a constructive macro story behind it, and the RBA is not stepping back.
But the situation is far from a clean bullish setup.
When markets are calm, AUD performs. When volatility picks up, the US Dollar tends to take over.
The broader bias is still supportive, but near-term risks are clearly starting to tilt to the downside.
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.
