The Aussie Dollar's recovery appears to have met some resistance in the 0.7070-0.7080 band against the US Dollar so far. Indeed, AUD/USD still shows signs of struggling to surpass 0.7000 in a sustainable fashion, while the constructive outlook still appears unchanged above its key 200-day SMA. Looking at the broader picture, the RBA’s cautious stance and still sticky domestic inflation are expected to keep underpinning the Aussie on occasional bouts of weakness.
The Australian Dollar (AUD) trades with decent gains on Tuesday, prompting AUD/USD to rapidly forget about the negative start to the week and refocus instead on the upper end of the recent range and the likelihood of a potential retest of 0.7100.
Indeed, the pair’s upbeat tone comes in contrast to the generalised lack of direction in both the risk complex and the US Dollar (USD), while market participants continue to monitor events from the Middle East.
Fanning the bull run, the Reserve Bank of Australia (RBA) delivered a hawkish hold at its event earlier on Tuesday, matching the broader consensus and opening the door to extra tightening in case of need.
Australia’s domestic backdrop remains resilient
The Australian economy does look healthy and stable altogether and, honestly, in much better shape than many of its G10 peers.
This performance appears underpinned by solid domestic demand and pretty decent figures when it comes to economic growth. The spectre of sticky inflation seems to justify the cautious and data-dependent stance from the Reserve Bank of Australia (RBA), particularly following the latest meeting, where it raised rates to 4.35%, broadly in line with market expectations.
Supporting the above, the final prints from the July Purchasing Managers’ Index (PMI) showed Manufacturing at 52.0 (from 51.5) and Services at 53.6 (from 50.5).
Adding extra shine to the domestic fundamentals, the latest trade balance figures showed an A$1.929 billion surplus in June, reversing May’s A$2.367 billion deficit. However, the latest Gross Domestic Product (GDP) data disappointed expectations after the economy expanded by 0.3% QoQ in Q1 2026 (from 0.9%) and 2.5% YoY (from 2.5%), with both prints coming in short of expectations.
Meanwhile, the labour market remains healthy. Indeed, the Unemployment Rate held steady at 4.4% in June, and the Employment Change increased by 76.3K individuals (from the revised 44K gain seen in the previous month).
Regarding inflation, June data came in short of what many were expecting, triggering speculation that the RBA might keep its hand steady for now and therefore giving bears a reason to return to the market and punish the Aussie. So far, the pace of disinflation remains weak, although the direction is still broadly correct.
Somehow reinforcing that view, the latest Melbourne Institute’s Consumer Inflation Expectations eased to 4.7% in July (from 5.5%).
For the RBA, that means the job is still incomplete, as policymakers continue to signal that inflation may only return to target around mid-2028, keeping the focus firmly on patience rather than any imminent pivot.
Looking ahead, investors expect the central bank to maintain its current stance on Tuesday, while they now anticipate just over 15 basis points of tightening by year-end.
China offers stability rather than momentum
China now looks more like a stabilising force than the tailwind it usually provides to the Australian economy.
Let’s see some numbers: the economy expanded by 4.3% YoY in the April-June period, while Retail Sales gained 1% in the year to June. In addition, Industrial Production kept its strong pace and expanded by 5.3% over the last twelve months.
Of note is the strong recovery of the trade balance, with June’s surplus widening to $125.62 billion from $105.4 billion in the previous month, and both imports and exports expanding markedly.
However, the latest business activity gauges left investors scratching their heads after the National Bureau of Statistics (NBS) reported the Manufacturing PMI at 49.2 in July (from 50.3) and Services at 49.0 (from 50.2). Contrasting with those official readings, private measures like RatingDog remained in expansionary territory last month, with Manufacturing at 50.9 (from 51.7) and Services at 50.4 (from 54.1).
The disinflationary trend in China seems to have re-emerged after the CPI disappointed expectations and rose by just 0.5% in the year to June (from 1.0%). On a monthly basis, prices dropped by 0.1%, while Producer Prices gained 3.5% over the last twelve months, easing from the 4.1% annual gain recorded in the previous month.
Regarding monetary policy, the People’s Bank of China (PBoC) matched consensus last month, leaving its Loan Prime Rates (LPR) unchanged at 3.00% for the one-year tenor and 3.50% for the five-year tenor.
In summary, China is no longer pushing growth higher, but it is not dragging it down aggressively either. It is simply keeping things steady.
RBA keeps the door open to further tightening
The RBA left its Official Cash Rate (OCR) unchanged earlier today but retained a clear tightening bias as inflation remains too high and risks are skewed to the upside. In addition, the decision to hold rates was unanimous.
Furthermore, the bank judged monetary policy to be somewhat restrictive following three rate increases this year. However, the Board discussed another increase, while Governor Michele Bullock confirmed that a rate cut was not considered. She said a further hike remained a possibility if incoming data showed persistent inflation pressure.
From the bank’s statement, the Trimmed Mean is forecast at 3.3% in Q4 2026, remaining above 3% until mid-2027 before falling towards 2.5% by early 2028. The RBA expects headline inflation at 3.6% in Q4 2026, 2.6% in Q4 2027 and 2.4% in Q4 2028. That said, short-term inflation expectations have eased but remain higher than earlier in the year.
Shifting to the labour market, it is still considered slightly tight, with only limited near-term easing expected. The jobless rate is projected to rise from 4.5% in Q4 2026 to 4.7% in Q4 2027 and 4.8% in Q4 2028. On this, Bullock stressed that slower economic growth and reduced labour-market tightness would be needed to bring inflation sustainably back to target.
Finally, the RBA expects subdued growth, with GDP expanding by 1.4% in Q4 2026, 1.6% in Q4 2027 and 1.8% in Q4 2028. Although the housing market has weakened more than anticipated, Bullock said this would not prevent the Board from raising rates.
Overall, the meeting delivered a hawkish hold. The RBA is waiting for more information, but another rate increase remains a live option, while rate cuts are firmly off the table for now.
AUD/USD outlook: Three possible paths
Base case
While above its key 200-day SMA, near 0.6930, the pair’s outlook is expected to remain tilted to further advances. However, for such a scenario to materialise, it needs a strong catalyst to emerge and is heavily dependent on the broader backdrop: without a sustained improvement in risk sentiment or continued US Dollar weakness, the probability of extra gains could start to lose momentum.
Bull case
Further conviction is needed. If risk appetite gathers serious pace, spot should first leave behind the psychological 0.7000 barrier with solid conviction to face the next hurdle at the 0.7200 yardstick, all before reaching the 2026 ceiling near 0.7280. Up from here comes the minor 0.7300 barrier. Further up, the 2022 peak at 0.7593 is still in place.
Bear case
In the current volatile context, we should not rule out the loss of further momentum. If sentiment deteriorates, the Greenback gains extra momentum, or Chinese data continue to disappoint, spot could recede further and initially challenge its critical 200-day SMA just above 0.6900. The loss of this zone could lead to a renewed wave of bearish moves in the short term.
Short covering eases the bearish pressure
Speculative positioning on the Australian Dollar improved in the week to August 4. Indeed, Commodity Futures Trading Commission (CFTC) data showed net short holdings in non-commercial positions narrowed to 33.2K contracts from 40.0K in the prior week. The +6.8K contract weekly move was the first significant drop in bearish exposure in some weeks, as investors seemed to be reducing short positions after a prolonged period of selling.
The move came as market activity rose further, with open interest climbing to just over 240K contracts from close to 230K contracts. Meanwhile, Speculative Exposure improved to -13.8% (from -17.4%), suggesting that negative conviction has softened even as new players continue to join the market.
The wider trend is also indicative of a slowdown in negative momentum, with the 4-week change jumping to -8.5K contracts from -22.3K before, suggesting the extreme bearish repositioning that has dominated June and July has mostly run its course. The Net Position Percentile, however, recovered to 74.3, and the Speculative Exposure Percentile jumped to 80.8, suggesting that while positioning is still historically negative, the market has moved away from the more extreme levels seen recently.
Overall, the latest CFTC data suggests that speculators are still short the Aussie, but the tone is much less bearish. The drop in the net short, along with the rise in 4-week momentum, suggests that the long unwind of shorts is beginning to change, with future positioning likely to become more data-dependent and global risk sentiment-dependent.
Key catalysts and risks ahead
In the near term, dynamics around the Greenback, global risk sentiment, and geopolitics remain the main focus. Those remain the key drivers of price action. On the domestic calendar, the RBA’s Bullock will speak on Friday alongside the release of housing data.
Potential risks include a sharper slowdown in China, a persistently cautious Fed, a change in investors' risk sentiment, or any shift in the RBA’s current cautious stance. Any of these could quickly destabilise the Australian currency in the near term.
Technical analysis
In the daily chart, AUD/USD trades at 0.7061, holding a constructive near-term bias as spot remains above the 200-day, 100-day and 55-day simple moving averages clustered between 0.6928 and 0.7053. The pair is edging just over the 100-day SMA pivot at 0.7053, suggesting underlying demand, while the 14-day Relative Strength Index around 59 stays bullish but shy of overbought territory, and a low Average Directional Index near 11 hints at a developing rather than established trend.
On the topside, initial resistance is located at 0.7079, with a broader barrier forming higher at 0.7278 and 0.7283, ahead of a more distant cap near 0.7661. On the downside, immediate support is reinforced by the 100-day SMA at 0.7053 and the 55-day SMA near 0.7009, followed by the 200-day SMA at 0.6928 and a more structural horizontal floor at 0.6833; deeper pullbacks would expose lower supports at 0.6660, 0.6593, 0.6414 and 0.6373.
Broader outlook stays constructive despite external headwinds
The Aussie remains constructive on the bigger picture, but the path higher is getting tougher.
Australia's domestic background continues to compare favourably with that of many advanced economies, and the RBA is in no rush to abandon its mildly hawkish bias.
However, that support is being offset by a resilient US Dollar, lingering geopolitical tensions and a Chinese economy that is stabilising rather than accelerating.
For now, the 200-day SMA remains the key zone. Holding above that level keeps the broader bullish structure intact, but a convincing break above 0.7000 will likely require a sustainable road downwards of US inflation, a more dovish turn from the Fed, or a meaningful improvement in global risk appetite.
Until then, expect the AUD to be more driven by outside forces than domestic fundamentals.
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