The Australian Dollar (AUD) kicked off the new trading week on a strong note, with AUD/USD pushing past the 0.6600 level and touching two-day highs.
What’s interesting is that this strength came even as the US Dollar (USD) bounced back sharply, sending the US Dollar Index (DXY) to fresh multi-day highs well north of the 98.00 mark.
Home data still holding up
Australia’s economy keeps defying the gloom. September’s final PMI readings softened a bit but stayed above the 50 mark, still in expansion territory.
The broader data has been solid too. Retail sales jumped 1.2% in June, the August trade surplus narrowed slightly to A$1.825 billion, and business investment picked up through Q2. GDP grew 0.6% QoQ and 1.8% over the last twelve months, hardly spectacular, but steady.
Jobs cooled a bit over the summer: Unemployment was unchanged at 4.2% in August, though total employment dipped slightly, down 5.4K individuals.
RBA keeping the pressure on
Inflation hasn’t cooled as much as the Reserve Bank of Australia (RBA) would like. The August Monthly CPI Indicator (Weighted Mean) edged up to 3.0% from 2.8%, while Q2 CPI rose 0.7% QoQ and 2.1% YoY.
That was enough to keep the RBA on a cautious, hawkish hold at its meeting on September 30. The cash rate stayed at 3.60%, as expected, but the central bank quietly dropped earlier hints about potential easing.
Officials warned that disinflation might be slowing after the CPI surprise and that Q3 could run hotter than their 2.6% forecast. Meanwhile, the real economy still looks solid: real wages are improving, asset prices are climbing, and households are feeling more confident, not exactly a backdrop for rate cuts.
Governor Michele Bullock reinforced that policy will stay data-dependent and decided one meeting at a time. Rate cuts aren’t off the table, but the RBA wants clearer signs that supply and demand pressures are easing.
For now, the trimmed mean CPI at 2.7% YoY in Q2 remains the key gauge, comfortably within the RBA’s 2%–3% target band.
So far, markets are pricing in around 15 basis points of easing by year-end and roughly 30 basis points by the end of 2026.
China still in the driver’s seat
Australia’s fortunes remain closely tied to China’s uneven recovery. Q2 GDP growth was a strong 5.2% YoY, but August retail sales missed at 3.4%. September PMIs told a mixed story: manufacturing stuck in contraction at 49.8, services barely holding at 50.0. On top of that, August CPI fell 0.4% YoY, keeping deflation concerns alive.
The People’s Bank of China (PBoC) kept its Loan Prime Rates (LPR) unchanged in September, with the one-year at 3.00% and the five-year at 3.50%, as markets expected.
Traders still sceptical
Speculative positioning shows little enthusiasm for the Aussie. Commodity Futures Trading Commission (CFTC) data to September 23 revealed net shorts climbing to 101.6K contracts, the highest in two weeks, while open interest also nudging higher to 160.8K contracts.
Technicals unchanged
The near-term outlook for AUD/USD remains constructive while above its critical 200-day SMA at 0.6412.
That said, further gains are expected to target the 2025 ceiling at 0.6707 (September 17), prior to the 2024 high at 0.6942 (September 30), which is closely followed by the psychological 0.7000 yardstick.
In the opposite direction, the weekly trough at 0.6520 (September 26) looks underpinned by the interim 100-day Simple Moving Average (SMA). Down from here, AUD/USD could attempt a move to the August base at 0.6414 (August 21), which is bolstered by the 200-day SMA. South from here emerges the June valley at 0.6372 (June 23).
Momentum indicators are mixed: the Relative Strength Index (RSI) has climbed past 56, hinting at swelling upside impulse, while the Average Directional Index (ADX) just below 17 suggests that the trend lacks muscle.
AUD/USD daily chart
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Waiting for a real trigger
For now, AUD/USD remains stuck in a broad 0.6400–0.6700 range. It’ll probably take a bigger spark, maybe stronger Chinese data, a dovish turn from the Fed, or a more cautious RBA, to break it out decisively.
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.
