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) kicks off the new trading week in quite an auspcious fashion, sparking a rebound in AUD/USD and prompting it to reclaim the area beyond the key 0.6900 barrier.
The renewed bid stance in the pair follows fresh selling interest in the US Dollar (USD), as market participants remain hopeful of an end to the hostilities between Iran and the US despite latest news suggesting that Iran rejected the temporary ceasefire in light of the imminent deadline set by President Trump for Tuesday.
Australia: still strong, but losing steam
Australia still seems very robust on the surface, which is good for the value of the Australian dollar. But the narrative is beginning to lose some of its power.
The general composition hasn’t altered much because the economy is still growing, inflation is still high, and the Reserve Bank of Australia (RBA) is still moving toward raising interest rates. That mix should keep giving the Aussie strong support.
But there are certain symptoms of weakening starting to show. That being said, the final March S&P Global Purchasing Managers’ Index (PMI) fell back into contraction territory at 49.8. The services gauge is at 46.6, which means that company activity is slowly slowing down. On the other hand, trade is still working, with a A$5.686 billion surplus in February, the biggest since July 2025.
Overall, the economy is still growing at a good rate. The Gross Domestic Product (GDP) grew by 0.8% from October to December and by 2.6% from the same time last year. The job situation is very slowly getting better; the unemployment rate rose to 4.3%, and the number of jobs added in February was 48.9K.
Inflation, on the other hand, is still the most important concern. So far, things have only gotten a little better. The Consumer Price Index (CPI) has gone up 3.7% in the last year, the Trimmed Mean has gone up 3.3%, and the Weighted Median has gone up 3.5%. Disinflation is happening, but not quickly enough to make everyone feel better.
The RBA thinks the task is far from over. Inflation isn’t forecast to hit its goal again until the middle of 2028, which puts policy pressure on.
China: steady, but not leading
At this point, China is not driving the Aussie anymore; it is more of a stabiliser.
The most recent GDP numbers show that the economy grew by 4.5% in the fourth quarter of 2025. Retail sales surged by 2.8% year over year in the first two months of the year, and trade conditions are still generally good. But things are not that clear-cut under the surface.
Indeed, the official PMI data published by the National Bureau of Statistics (NBS) still point to contraction, while private surveys such as RatingDog remain in expansion territory, although March readings eased compared to the previous month.
Inflation dynamics reinforce that middle ground. The CPI rose 1.2% YoY, while the Producer Price Index (PPI) remained in deflation at -0.9% YoY. That gives the People’s Bank of China (PBoC) room to stay on hold, keeping the Loan Prime Rate (LPR) unchanged at 3.00% and 3.50% for the one-year and five-year tenors.
For the AUD, the takeaway is straightforward. China is no longer a drag, but it is not providing a strong tailwind either.
RBA: clear bias, uncertain timing
The RBA’s latest move says a lot about where policy stands. A narrow 5–4 vote to hike the Official Cash Rate (OCR) to 4.10% highlights just how finely balanced the situation is.
The core message remains unchanged. Capacity constraints persist, and higher oil prices could add to inflation in the near term. Governor Michele Bullock was clear in stressing that excess demand remains the central issue.
The debate now is more about timing. Some policymakers appear more inclined to pause and assess the impact of external shocks.
The Minutes reinforced this uncertainty. After two rate hikes this year, policymakers acknowledged limited visibility on the future path of rates, with geopolitical developments making the outlook harder to gauge.
Markets, for now, are still leaning towards further tightening, with close to 59 basis points priced in by year end.
AUD positioning: speculative longs remain on the rise, but
Non-commercial positioning (speculators) in AUD continues to tilt further towards the long side, with net longs rising for a third consecutive week to around 81.5K contracts.
However, the growing gap between positioning and price action continues to grow. That said, spot has drifted lower over the same period, sliding from above 0.7100 to the sub-0.6900 region, suggesting traders are holding onto a constructive medium-term view, but near-term confirmation seems to be lacking.
Open interest has increased for the third consecutive week, suggesting that new positions are being taken, adding more confidence to the move, even when prices do not tag along.
This shows a divergence: as the Aussie is beginning to seem like a crowded long in a market that doesn’t reward that perspective, risks of a quicker reversal rise if things deteriorate.
Potential scenarios
Base case:
Extra gains remain capped by the 0.7050 region on the back of a firmer Greenback and escalating tensions in the geopolitical landscape.
Bull case:
A sustained improvement in the sentiment surrounding the risk-associated galaxy or worsening US fundamentals could prompt the pair to revisit the 0.7100 barrier and above, confirming the current bullish perspective.
Bear case:
The continuation of the rally in the US Dollar coupled with disheartening Chinese data or a pick-up in the risk-off trade could all lead to a potential retest of the 0.6800 neighbourhood.
What’s next for AUD/USD
Near term: the attention is expected to remain on the US Dollar, the broader risk sentiment, and geopolitics. Regarding data, the last S&P Global Services PMI and Household Spending readings should be at the centre of the domestic docket. Far from home, the FOMC Minutes and US inflation data, particularly the CPI, will be on top of the agenda.
Risks: the resurgence of a more persistent economic slowdown in China, a shift of the Federal Reserve’s (Fed) stance, or an occasional change of heart from the RBA might all hurt the Aussie and spark a deeper move lower.
Technical corner
In the daily chart, AUD/USD trades at 0.6915. The near-term bias is neutral with a mild downside skew, as the pair eases away from the recent 0.7150 area while holding above clustered supports. Price remains above the 100- and 200-day Simple Moving Averages (SMAs), which sustain the broader uptrend context, but the Relative Strength Index (RSI) around 44 shows fading bullish momentum and growing selling pressure. The Average Directional Index (ADX) near 25 indicates trend strength has cooled from earlier elevated readings, aligning with a consolidative phase rather than an impulsive advance.
Immediate support is seen at 0.6833, reinforced nearby by the 50% Fibonacci retracement at 0.6784 measured from the 0.6421 low to the 0.7147 high. On the upside, initial resistance stands at the recent cap near the 23.6% retracement at 0.6976, followed by the horizontal barrier at 0.7158. A daily close above 0.7158 would be needed to revive a clear bullish bias and open the way toward the next resistance at 0.7283.
(The technical analysis of this story was written with the help of an AI tool.)
To sum up
Despite the good macro base around AUD and the hawkish stance from the RBA, a sustainable climb appears unlikely for now.
It is worth noting that a favourable risk-on mood tends to benefit the Australian Dollar, although a pick-up of volatility and/or uncertainty tends to support inflows into the safe haven space, where the US Dollar remains the winner.
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.
