For now, the near-term outlook for the Australian Dollar (AUD) remains constructive, underpinned by persistently high inflation in Australia and the RBA’s hawkish bias. This backdrop is likely to support further upside in AUD/USD while also offering a cushion against periodic pullbacks.
The Australian Dollar (AUD) trades in quite a volatile fashion on Monday, prompting AUD/USD to briefly approach the 0.6900 region just to return past the 0.7050 level afterwards.
The pair’s inconclusive price action comes despite marked losses in the US Dollar (USD), which has been particularly hurt as market participants continue to assess comments from President Trump, who said the US will delay strikes on Iran’s energy facilities.
Australia: still holding up, but inflation won’t go away
Australia’s story hasn’t really changed, and that’s precisely the point. The backdrop remains solid enough to keep a floor under the Aussie but not soft enough to give the Reserve Bank of Australia (RBA) any real comfort.
Growth is holding up, inflation is proving sticky, and the RBA is still leaning hawkish. From an FX perspective, that combination continues to act as a decent cushion for the AUD.
The latest data back that up. February’s Purchasing Managers’ Index (PMI) stayed in expansion; retail spending is still ticking along, and the trade balance printed a A$2.631 billion surplus in January.
More broadly, momentum is still there: the Gross Domestic Product (GDP) grew by 0.8% QoQ in Q4 and 2.6% YoY, while the labour market is only easing gradually, with unemployment at 4.3% and Employment Change jumping by 48.9K.
But inflation is the sticking point, as the Consumer Price Index (CPI) is running at 3.8% YoY, with the Trimmed Mean at 3.4%. Yes, disinflation is happening, but it’s slow, and for the central bank, not nearly fast enough.
From their perspective, the job is not done. Inflation is not expected back at target until mid-2028, which keeps the pressure firmly on.
China: helping, but not driving
China’s role in the Aussie story has clearly shifted. It’s no longer the big growth engine, more of a stabiliser in the background.
The numbers reflect that. The economy expanded by 4.5% for the fourth quarter of 2025, and retail sales saw a yearly increase of 2.8%. Trade conditions, for the most part, continue to be favourable.
However, a closer look reveals a more nuanced situation: The official PMI (NBS) continues to indicate a contraction, despite the more positive outlook presented by private surveys (RatingDog).
Furthermore, inflation figures show a 1.2% YoY increase in the Consumer Price Index (CPI) for February. The Producer Price Index (PPI), however, continues to experience deflation, with a decline of -0.9% from a year earlier.
That gives the People’s Bank of China (PBoC) room to sit tight, keeping the Loan Prime Rates (LPR) unchanged at 3.50% and 3.00%, respectively.
For the AUD, the takeaway is pretty straightforward. China is no longer a drag, but it is not providing a strong tailwind either.
RBA: direction clear, timing less so
The RBA’s latest move says a lot. A tight 5–4 vote to lift the Official Cash Rate (OCR) to 4.10% tells you just how finely balanced things are right now.
The message, though, is still consistent. Capacity constraints remain, and higher oil prices could add to inflation in the near term.
Governor Michele Bullock doubled down on that. Excess demand is still the core issue, and the energy shock just adds another layer of upside risk.
At this point, the debate is less about where rates are going, and more about when. Some on the Board would prefer to pause and see how these external shocks filter through.
Markets are leaning that way too, pricing a pause in May, but still expecting around 43 basis points of additional tightening by year end.
AUD positioning: better tone, but not fully convincing
On the positioning side, there are early signs that sentiment towards the Aussie is improving.
The latest data from the Commodity Futures Trading Commission (CFTC) for the week ending March 17 show net long positions rising to just over 69K.
But there’s a catch. Open interest dropped sharply, hitting nearly 265K contracts. That usually points to short covering rather than strong, fresh buying.
And price action doesn’t fully back the story. AUD/USD actually edged slightly lower over the week, revisiting the 0.7100 neighbourhood.
What it means
Put it all together, and the message is fairly clear.
Positioning is turning more constructive, but it’s not a high-conviction move. It looks more like bears stepping back than bulls stepping in aggressively.
FX takeaway
The Aussie is starting to look better supported again, but the foundations are not rock solid just yet.
In the near term, it remains very sensitive to global risk sentiment and anything coming out of China. For a lasting upward movement, the market will probably require real money coming in, rather than just a reshuffling of existing positions.
AUD/USD: What to Watch
In the short term: AUD/USD should continue to be influenced by the US Dollar and overall market sentiment, with the preliminary March PMIs coming into focus on Tuesday.
Risks: a waning appetite for risk, disappointing data from China, or a resurgent US Dollar could quickly shift the balance against the pair.
Technical levels
In the daily chart, AUD/USD trades at 0.6990. The near-term bias turns mildly bearish after the pair slipped below the 23.6% Fibonacci retracement at 0.6976 measured from the 0.6421 low to the 0.7147 high, signaling fading upside momentum from the recent peak. Price remains well above the rising 55-, 100- and 200-day Simple Moving Averages (SMAs), so the broader trend still points higher, but the Relative Strength Index (RSI) easing toward the mid-40s confirms weakening bullish pressure. At the same time, the Average Directional Index (ADX) retreating toward the low-20s highlights a loss of trend strength and aligns with a corrective phase rather than an impulsive extension higher.
Initial resistance now stands at the previous horizontal barrier at 0.7158, reinforced by the swing high near the 0.7147 Fibonacci reference, with a break there opening the door toward 0.7283 and then 0.7661. On the downside, immediate support is seen at the horizontal level at 0.6897, ahead of the 38.2% retracement at 0.6870, where dip buyers would be expected to react if the broader bullish structure is to remain intact. A deeper decline would expose the 0.6660 and 0.6593 supports near the clustered medium- and long-term SMAs, while a decisive break below that zone would significantly erode the prevailing uptrend and shift focus toward the lower band of support at 0.6414 and 0.6373.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: supported, but not a free ride
The Aussie still has a decent macro story behind it and a central bank that is not ready to back off.
But this is not a one-way trade.
When risk is calm, AUD does well. When volatility picks up, the US Dollar tends to take control.
So yes, the bias is supportive, but it comes with conditions attached.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
