The optimism around the Australian Dollar remains intact. A cautious but clearly hawkish stance from the Reserve Bank of Australia (RBA), along with sticky inflation at home and broadly solid fundamentals, continues to underpin the currency and leaves the door open for further gains in the near term.
Even without a strong directional impulse on Thursday, AUD/USD has climbed to fresh 2026 highs near 0.7150, supported by the RBA’s hawkish narrative and a US Dollar (USD) that still struggles to gain consistent traction.
Australia: cooling, but in control
Recent data out of Australia have not been spectacular, but they reinforce a reassuring message. The economy is easing, not rolling over. Momentum has softened in an orderly way, keeping the soft landing story alive.
January Purchasing Managers’ Index (PMI) surveys remain comfortably in expansion territory, with Manufacturing at 52.3 and Services at 56.3. In addition, Retail Sales are holding up reasonably well, and the trade surplus widened to A$3.373 billion at the end of 2025.
Meanwhile, growth is moderating only gradually after the Gross Domestic Product (GDP) expanded 0.4% QoQ in Q3, while annual growth printed at 2.1%, exactly in line with RBA projections.
The labour market continues to impress: Employment Change surged by 65.2K in December, and the Unemployment Rate dipped to 4.1% from 4.3%, again beating expectations. Focus now shifts to next week’s release of the jobs report for the month of January.
Inflation remains the more delicate part of the story, as the December Consumer Price Index (CPI) surprised to the upside, with headline inflation rising to 3.8% YoY. The Trimmed Mean came in at 3.3%, in line with consensus but slightly above the RBA’s 3.2% projection. On a quarterly basis, trimmed mean inflation printed at 3.4% YoY in Q4. Meanwhile, the Melbourne Institute Inflation Expectations jumped to 5.0% in February, the highest since August 2023.
Housing credit is another area worth watching, however: Home Loans surged by 10.6% QoQ in Q4 2025, the fastest pace since March 2021, while Investment Lending for Homes climbed 7.9%. In simple terms, liquidity is still flowing into property, pointing to loose conditions and strengthening the case for the RBA to remain vigilant rather than pivot prematurely.
China: helpful, but not a turbocharger
China continues to provide a decent underlying cushion for the Aussie. The backdrop is broadly constructive, but it lacks the punch of a synchronised upswing that would normally drive a sustained AUD rally. For now, it feels more like steady background support than a true catalyst.
The economy expanded 4.5% YoY in Q4, with quarterly growth at 1.2%. Retail Sales rose 0.9% YoY in December, solid but not spectacular.
More recent data point to renewed softness: the National Bureau of Statistics (NBS) Manufacturing and Non-Manufacturing PMIs slipped back into contraction in January at 49.3 and 49.4, respectively. In addition, the Caixin surveys were more encouraging after Manufacturing edged up to 50.3 and Services improved to 52.3.
Furthermore, trade was a clearer positive after the surplus widened sharply to $114.1 billion in December, with exports up nearly 7% and imports rising 5.7%.
Inflation signals remain mixed, in contrast. The January consumer prices rose 0.2% YoY, while Producer Prices fell 1.4% YoY, underscoring lingering deflationary pressures.
Earlier in the year, the People’s Bank of China (PBoC) kept Loan Prime Rates (LPR) unchanged at 3.00% for the one year and 3.50% for the five years, reinforcing the idea that policy support will remain gradual rather than forceful.
RBA: restrictive, and comfortable with it
The RBA lifted the Official Cash Rate (OCR) to 3.85% in a move with a clear hawkish tilt. Upgraded growth and inflation forecasts suggest firmer momentum and more widespread price pressures. Core inflation is now expected to remain above the 2 to 3% target band for much of the forecast horizon, strengthening the argument for keeping policy restrictive.
Officials have signalled that inflation is increasingly demand-driven rather than purely external, pointing to stronger private demand even as productivity remains weak.
Governor Bullock framed the move as a recalibration, not the start of an aggressive tightening cycle. Still, the message was clear: the Board is uneasy about inflation drifting higher and is not prepared to take risks.
Deputy Governor Andrew Hauser reinforced that message, noting that inflation remains too high and the economy is operating close to capacity.
For now, markets are pricing in nearly 35 basis points of additional tightening this year.
In the FX universe, that keeps the Aussie reasonably well supported, especially against lower-yielding peers.
Positioning: confidence creeping back
According to the Commodity Futures Trading Commission (CFTC), non-commercial traders lifted their net long positions to around 26.1K contracts in the week to February 3, levels last seen in late November 2024.
Open interest has risen for three consecutive weeks to roughly 254.2K contracts, suggesting fresh capital is entering the market rather than simply recycling existing exposure.
What to watch
Near term: US data, tariff headlines and geopolitical developments will likely drive the USD side of the equation. Domestically, labour market and inflation releases remain pivotal for shaping the RBA outlook. On this, the RBA Minutes on February 17 will provide further clarity on the latest decision ahead of the labour market report on February 19.
Risks: AUD remains sensitive to global risk appetite. A sharp deterioration in sentiment, renewed China concerns or a sustained Greenback rebound could quickly unwind recent gains.
Technical Analysis
In the daily chart, AUD/USD trades at 0.7123. The 55-day Simple Moving Average (SMA) climbs above the 100- and 200-day SMAs, reinforcing a bullish bias. All three SMAs trend higher and price holds well above them, with the 55-day SMA at 0.6765 acting as dynamic support. The Relative Strength Index stands above 70 (overbought), while the Average Directional Index near 50 highlights firm trend strength. Immediate resistance aligns at 0.7147, followed by 0.7283.
Support is seen at 0.6897, then at 0.6660. A daily close above 0.7147 could extend the advance toward 0.7283, whereas a reversal through initial support would expose a deeper pullback toward the 55-day SMA. With longer SMAs rising and the pair trading above them, the broader bias would remain upward unless key supports fail.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line
AUD/USD remains tightly linked to global risk sentiment and China’s growth outlook. A sustained break above the 0.7000 handle would reinforce the constructive bias and turn it into a more convincing bullish signal.
For now, a softer USD, steady domestic data, a clearly hawkish RBA and a broadly supportive, if not explosive, China backdrop keep risks tilted towards further upside rather than a meaningful reversal.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
