The upside momentum around the Australian Dollar (AUD) appears to have lost some impulse in the last few days, prompting AUD/USD to surrender part of its recent gains. However, consistently elevated domestic inflation and the RBA’s cautious stance should keep the currency well propped up for the time being.
The Australian Dollar (AUD) loses ground for the fourth day in a row vs the US Dollar (USD), forcing AUD/USD to once again breach below the key 0.7000 yardstick and challenge the lower end of the monthly range.
The continuation of the bearish mood around the pair follows the firmer tone in the Greenback, which remains underpinned by safe-haven demand stemming from unabated geopolitical tensions in the US-Israel-Iran military conflict.
Australia: steady backdrop, but cracks emerging
Australia’s story has not materially changed, and that in itself is the key point. The backdrop remains firm enough to keep a floor under the Australian currency, but not soft enough to give the Reserve Bank of Australia (RBA) much comfort. Growth is holding up, inflation remains sticky, and the RBA continues to lean hawkish, a mix that still offers support to the currency.
That said, early signs of cooling are starting to emerge. Business activity appears to be softening, with the Purchasing Managers’ Index (PMI) expected at 50.1 in Manufacturing and 46.6 in Services for March. Trade continues to help, with a A$2.631 billion surplus reached at the start of the year.
More broadly, momentum is still present: Gross Domestic Product (GDP) expanded by 0.8% QoQ in Q4 and 2.6% YoY, while the labour market is easing only gradually, with unemployment at 4.3% and the Employment Change increasing by 48.9K.
However, inflation remains the sticking point. Indeed, the latest data show only modest progress, with the Consumer Price Index (CPI) easing to 3.7% YoY in February (from 3.8%), the Trimmed Mean at 3.3% YoY (from 3.4%), and the Weighted Median at 3.5% (from 3.6%). Disinflation is underway, but the pace is slow, and for the RBA, not nearly sufficient. Inflation is not expected to return to target until mid-2028, keeping pressure firmly in place.
China: a stabiliser, not a driver
China’s role in Australia’s outlook has clearly shifted. It’s not the primary driver of expansion anymore but a steadying presence, working quietly behind the scenes.
In the final quarter of 2025, the economy expanded by 4.5%, and retail sales climbed 2.8% compared to the previous year.
Trade conditions are generally favourable, though the situation is more complicated than it appears. The National Bureau of Statistics (NBS) continues to report contraction in its official PMI figures, whereas private surveys, like those conducted by RatingDog, offer a more positive perspective.
Inflation also introduces further intricacies. The Consumer Price Index (CPI) climbed by 1.2% year-over-year in February, but the Producer Price Index (PPI) remained in deflation, registering -0.9% year-over-year.
This gives the People’s Bank of China (PBoC) room to remain on hold, keeping Loan Prime Rates (LPR) unchanged at 3.50% and 3.00% for five-year and one-year rates.
For the AUD, the takeaway is straightforward. China is no longer a drag, but it is not providing a strong tailwind either.
RBA: path set, timing debated
The RBA’s latest decision underscores how finely balanced the outlook is. A narrow 5–4 vote to lift the Official Cash Rate (OCR) to 4.10% highlights the internal division.
The broader message remains consistent. Capacity limitations continue to be a problem, and rising oil prices might exacerbate inflation in the short term. Governor Michele Bullock made it clear: the main worry remains excess demand. Energy price swings, she noted, add further complications, potentially pushing things in the wrong direction.
At this stage, the debate is less about direction and more about timing. Some policymakers favour a pause to assess how external shocks filter through. Markets are leaning that way, pricing a pause in May, while still expecting around 62 basis points of additional tightening this year.
Positioning: improving tone, limited conviction
Positioning data suggest sentiment towards the AUD is becoming more constructive. The most recent data from the Commodity Futures Trading Commission (CFTC) indicates that net long positions have climbed slightly, exceeding 69K contracts.
Open interest, however, has suffered a considerable decline, currently sitting at approximately 265K contracts. This suggests a greater degree of short covering rather than new positions being established. Price movements corroborate this, as the AUD/USD currency pair retraces toward the 0.7100 level.
Despite the better positioning, overall confidence is still a bit shaky.
The shift looks more like bearish pressure easing than strong bullish demand building.
FX takeaway
The AUD is beginning to look better supported, but the foundations are not yet fully convincing. In the near term, it remains highly sensitive to global risk sentiment and developments out of China. A sustained move higher would likely require genuine inflows rather than repositioning.
What’s in store for AUD/USD
Near term: AUD/USD is likely to remain driven by the Greenback and broader market sentiment, particularly against the backdrop of ongoing tensions in the Middle East.
Risks: a deterioration in risk appetite, softer Chinese data, or (an unlikley) change of stance from the RBA could quickly shift the balance against spot.
Technical landscape
In the daily chart, AUD/USD trades at 0.6964.
The near-term bias turns mildly bearish after the pair failed to sustain gains above the upper Fibonacci band, with price slipping back under the 23.6% retracement at 0.6976 measured from the 0.6421 low to the 0.7147 high. Daily closes remain comfortably above the rising 55-, 100- and 200-day Simple Moving Averages (SMAs), which keeps the broader trend up but contrasts with softening momentum, as the Relative Strength Index (RSI) retreats toward the mid-40s. The Average Directional Index (ADX) has eased from elevated readings into the low-20s, indicating that the previous strong uptrend has transitioned into a weaker, corrective phase.
Immediate support is located at the 38.2% retracement at 0.6870, reinforced by the horizontal level at 0.6897, with further downside exposure opening toward 0.6660 and then 0.6593 if sellers extend control. On the upside, initial resistance appears at the 23.6% retracement at 0.6976, followed by the recent swing ceiling at 0.7147 and the horizontal barrier at 0.7158. A daily close back above that resistance area would neutralise the current corrective tone and refocus attention on higher resistance at 0.7283.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: supported, but conditional
Australia’s economy remains resilient, and its central bank is not signalling any intention to step back. However, this is far from a one-way trade.
When risk sentiment is stable, the AUD tends to perform well. When volatility rises, the US Dollar regains control. The bias remains supportive, but it comes with clear conditions attached.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
