AUD/USD is still struggling to find clear direction, maintaining the trade within a multi-day consolidative theme. Any upside so far has been capped around the 0.6700 area, with the US Dollar (USD) continuing to call the shots on short-term price action.
The Aussie Dollar (AUD) is trying to shake off Tuesday’s sharp pullback against the Greenback, allowing AUD/USD to swing between gains and losses midweek. That said, rallies remain tentative and comfortably below the key 0.6700 resistance zone.
This doesn’t feel like a shift in the story. It’s more a reminder that, for now, the US Dollar remains firmly in the driver’s seat.
The mild rebound reflects renewed softness in the Greenback, as bearish sentiment crept back in midweek. Concerns around Federal Reserve (Fed) independence, alongside growing speculation that the Fed could still deliver further rate cuts later this year, weigh on the buck and give spot some breathing space.
In the meantime, the broader backdrop for the pair still looks constructive. The pair is holding above both its 200-week and 200-day Simple Moving Averages (SMAs), at 0.6624 and 0.6521 respectively. That keeps the medium-term bias tilted to the upside and suggests the latest pullback looks more like noise than a genuine trend change.
Australia: slowing gently, staying steady
Australia’s recent data haven’t exactly excited markets, but they haven’t unsettled them either. Growth is cooling, but in an orderly way that still fits neatly with the soft-landing narrative.
December Purchasing Managers’ Index (PMI) readings told a familiar story: Both Manufacturing and Services eased slightly in the preliminary estimates, yet remained comfortably in expansion territory. Retail Sales continue to hold up reasonably well, while the trade surplus narrowed to A$2.936 billion in November, still firmly in positive territory.
Growth has lost a bit of momentum. Indeed, Gross Domestic Product (GDP) expanded by 0.4% QoQ in Q3, down from 0.7% previously. Even so, annual growth held at a solid 2.1%, broadly in line with what the Reserve Bank of Australia (RBA) had been forecasting.
The labour market is also showing early signs of cooling, as the Employment Change fell by 21.3K in November, but the Unemployment Rate stayed put at 4.3%, pointing to moderation rather than outright weakness.
Inflation remains the uncomfortable part of the picture, as price pressures are easing, but only slowly. Headline Consumer Price Index (CPI) slowed to 3.4% in November, while the trimmed mean dipped to 3.2%, still well above the RBA’s comfort zone.
China helps, just not like it used to
China continues to offer some support to the Aussie, though the impact is more muted than in past cycles.
GDP growth held at 4.0% YoY in the July–September quarter, while Retail Sales rose 1.3% YoY in November. Decent numbers, but nowhere near the kind of momentum that once turbocharged the AUD.
More recent data have shown tentative improvement. Both the official Manufacturing PMI and the Caixin index edged back into expansion territory at 50.1 in December. Services activity has also firmed, with the non-manufacturing PMI at 50.2 and Caixin’s Services PMI holding at a solid 52.0.
Trade figures were another bright spot. The surplus widened to $111.1 billion in December, with exports rising nearly 7% and imports up 5.7%.
Inflation signals remain mixed after the headline CPI was steady at 0.8% YoY in December, but Producer Price Index (PPI) inflation stayed negative at -1.9%, a reminder that deflationary pressures haven’t fully disappeared.
For now, the People’s Bank of China (PBoC) is in no rush. Loan Prime Rates (LPR) were left unchanged in December, reinforcing the idea that any policy support will be gradual rather than aggressive.
The RBA: firm stance, plenty of patience
The RBA delivered a hawkish hold, leaving the cash rate unchanged at 3.60% and sticking to a firm policy tone.
Governor Michele Bullock made it clear the bank isn’t in any rush to cut rates. She pushed back on talk of near-term easing, signalling the Board is comfortable sitting tight for longer and is still prepared to tighten further if inflation refuses to behave.
The December Minutes added colour to that stance, showing policymakers are still actively debating whether financial conditions are actually restrictive enough, a reminder that rate cuts are anything but a done deal.
Meanwhile, all eyes now turn to the Q4 trimmed mean CPI print in late January, which could shape the next phase of the policy debate. Even so, the Reserve Bank of Australia is still widely expected to stay on hold again at its February meeting.
Positioning: less bearish, still cautious
Positioning data suggest sentiment is improving, but confidence remains thin. Commodity Futures Trading Commission (CFTC) figures for the week ending January 6 show net short positions in the AUD trimmed to around 19K contracts, the smallest bearish stance since September 2024.
Open interest has risen for a second consecutive week, approaching 231K contracts. That points to fresh participation returning to the market, though conviction still looks tentative rather than outright bullish.
What could move the needle next
Near term: US data releases and comments from Federal Reserve officials should drive the USD side of the equation. Domestically, Australia’s Consumer Inflation Expectations data on Thursday will also be watched closely.
Risks: AUD remains vulnerable to a shift in risk sentiment. A sudden risk-off move, renewed doubts about China’s outlook, or a stronger-than-expected rebound in the USD could quickly cap any upside.
Technical landscape
The loss of weekly troughs at 0.6659 (December 31) and 0.6592 (December 18), could spark a deeper pullback to, initially, the 0.6595-0.6580 band, where the temporary 55-day and 100-day SMAs are located. Once AUD/USD breaks below this region, it could then challenge its key 200-day SMA at 0.6521, prior to the November floor at 0.6421 (November 21).
On the upside, the initial resistance comes at its 2026 ceiling of 0.6766 (January 7), seconded by the 2024 top at 0.6942 (September 30), all ahead of the 0.7000 milestone.
Looking at the broader scenario, the pair’s near-term positive outlook is expected to persist as long as it trades above its 200-day SMA.
Meanwhile, momentum indicators are consistent with extra gains in the short-term horizon: The Relative Strength Index (RSI) hovers around the 54 zone, while the Average Directional Index (ADX) near 29 is still indicative of a firm trend.
Bottom line
No fireworks, but no obvious reason to turn bearish either.
AUD/USD remains closely tied to global risk sentiment and China’s outlook. A clean break above 0.6800 would be needed to signal something more convincing on the upside.
For now, a choppy USD, steady domestic data, an RBA that isn’t blinking, and modest support from China keep the balance tilted toward gradual gains rather than a decisive breakout.
