- AUD/USD rose further and surpassed the 0.6600 barrier on Tuesday.
- The US Dollar extended its bearish developments on shutdown worries.
- The RBA delivered a hawkish hold at its event early on Tuesday.
The Australian Dollar (AUD) kept the positive momentum from Monday rolling, with AUD/USD climbing back above the 0.6600 mark to challenge multi-day highs. That move sets the stage for a possible run at the yearly peak north of 0.6700 the figure sooner rather than later.
The extra lift came from a softer US Dollar (USD), weighed down by lingering fears of a potential US government shutdown and steady bets on more Federal Reserve (Fed) rate cuts later this year.
Resilient economy
Australia’s economy continues to surprise on the upside. Early September flash data suggests the Manufacturing PMI may ease to 51.3 and the Services PMI to 52.0, but both remain above the 50 threshold, still signalling expansion.
The hard numbers have been upbeat too. Retail sales rose 1.2% in June, July’s trade surplus widened to A$7.3 billion, and business investment picked up in Q2. GDP figures also held steady, showing the domestic economy expanding 0.6% from the previous quarter and 1.8% YoY.
That said, the labour market is showing a few cracks:The Unemployment Rate held at 4.2% in August, but the Emlployment Change slipped by 5.4K.
RBA cautious, but not dovish
Inflation remains the key headache. July’s Monthly CPI Indicator (Weighted Mean) jumped to 2.8% from 1.9% in June. On a quarterly basis, Q2 CPI rose 0.7% QoQ and 2.1% YoY.
Against that backdrop, the Reserve Bank of Australia (RBA) opted for a hawkish hold earlier on Tuesday, keeping the cash rate at 3.60% in a unanimous decision, exactly as expected.
The statement quietly dropped previous references to more easing, highlighting concerns that disinflation is slowing after August’s stronger CPI print. Policymakers also warned that Q3 inflation could overshoot their 2.6% forecast.
Complicating things, the economy itself is holding up well. Real wage growth is firming, asset prices are pushing higher, and the wealth effect is giving consumption another leg up, hardly the ideal setting for rate cuts.
At her press conference, Governor Michele Bullock struck a measured tone. She stressed that policy remains data-dependent and will be decided meeting by meeting. Rate cuts aren’t ruled out, but she made clear they would only come if supply-demand imbalances shrink further. For now, the quarterly trimmed mean CPI, at 2.7% YoY in Q2, is the yardstick for whether inflation is behaving within the RBA’s 2–3% target range.
Markets have taken the hint: implied pricing now shows around 13 basis points of easing by year-end, down from 18 before the meeting.
China still the swing factor
Australia’s outlook is still closely tied to China. Q2 GDP there grew 5.2% YoY, but August retail sales disappointed at 3.4%. The September PMIs painted a mixed picture: manufacturing stayed in contraction at 49.8, while services just clung to growth at 50.0. Meanwhile, deflation worries persist, with CPI falling 0.4% YoY in August.
As expected, the People’s Bank of China (PBoC) left its Loan Prime Rates (LPR) unchanged in September: 3.00% for the one-year and 3.50% for the five-year.
Speculators stay bearish
Positioning still leans against the Aussie. Commodity Futures Trading Commission (CFTC) data for the week ending September 23 showed net shorts climbing to roughly 101.6K contracts, a two-week high. Furthermore, open interest also ticked up to about 160.8K contracts, the most in two weeks.
Technical picture
The ongoing recovery seems to have opened the door to a potential challenge of the 2025 highs.
Indeed, if buyers extend their momentum, AUD/USD could retest the YTD ceiling at 0.6707 (September 17). A clean move through there would put last year’s high at 0.6942 (September 30) on the radar, just shy of the psychological 0.7000 mark.
On the other hand, the loss of the weekly trough at 0.6520 (September 26) could open the door to a test of the transitory 100-day Simple Moving Average (SMA) at 0.6517. A clear break lower would open the way back to the August low at 0.6414 (August 21), with the 200-day SMA nearby at 0.6405. Below that lies the June trough at 0.6372 (June 23).
Momentum indicators remain mixed: the Relative Strength Index (RSI) has bounced past 57, hinting at incipient buying pressure, while the Average Directional Index (ADX) around 17 still suggests the trend is relatively weak.
AUD/USD daily chart
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Near-term outlook
For now, AUD/USD remains stuck in a broad 0.6400–0.6700 range. A decisive breakout likely needs a stronger catalyst: Maybe firmer and more sustainable Chinese data, a softer Fed tone, or a persistently cautious mood from the RBA.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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