For the time being, the near-term prospect for the Australian Dollar (AUD) remains positive, supported by consistently high inflation in Australia and the RBA’s hawkish stance. This combination is likely to pave the way for further increases in AUD/USD while also providing a floor for occasional sell-offs.
The Australian Dollar (AUD) regains composure on Thursday, leaving behind the previous day’s correction and lifting AUD/USD decisively above the key 0.7000 barrier.
The pair’s rebound comes in response to the renewed and firm selling bias in the US Dollar (USD), while investors continue to assess the latest Fed decision to keep its interest rates unchanged. In addition, mixed results from the Australian jobs report in February also prop up the uptick in spot.
Australia: solid momentum, stubborn inflation
Australia’s macro backdrop continues to provide a solid floor for the Aussie, but it is not cooling fast enough to fully reassure the Reserve Bank of Australia (RBA).
Growth remains resilient, inflation sticky, and the RBA firmly on the hawkish side. For FX, that mix still acts as a meaningful cushion under the AUD.
Recent data back that up. February’s Purchasing Managers’ Index (PMI) stayed in expansion; retail spending remains firm, and the trade balance posted a A$2.631 billion surplus in January.
More broadly, momentum is holding. Gross Domestic Product (GDP) expanded 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.
The problem remains inflation. The Consumer Price Index (CPI) is running at 3.8% YoY, with the Trimmed Mean at 3.4%, showing disinflation is underway but too slow for comfort.
From the RBA’s perspective, the job is not done. Inflation is not expected back to target until mid-2028.
China: stabiliser, not a catalyst
China’s role in Australia’s outlook has shifted from growth engine to stabiliser.
The numbers paint a picture of steady, if unspectacular, growth. In the final quarter of 2025, there was a 4.5% uptick. Retail sales also saw a year-over-year rise of 2.8%, and trade remained stable.
However, business activity presents a more complex picture. The official Purchasing Managers’ Index (PMI) continues to show contraction, even though private sector measures suggest growth.
Inflation remains subdued. The Consumer Price Index (CPI) is barely moving, and the Producer Price Index (PPI) stays in deflation, allowing the People’s Bank of China (PBoC) to keep the Loan Prime Rate (LPR) unchanged.
For AUD, the takeaway is simple: China is no longer a drag, but not a strong tailwind either.
RBA: tightening bias, timing debate
The RBA delivered a tight 5–4 decision to hike the Official Cash Rate (OCR) to 4.10%, highlighting how finely balanced policy has become.
The statement flagged persistent capacity constraints and warned that higher oil prices could lift inflation in the near term.
Governor Michele Bullock reinforced that message. Excess demand remains the core issue, and the energy shock adds another layer of upside risk.
The debate is now about timing, not direction. Those favouring a pause want to assess how external shocks feed through.
Markets lean towards a pause in May but still price in around 43 basis points of further tightening by year-end.
Positioning: lighter longs, still engaged
Latest Commodity Futures Trading Commission (CFTC) data show speculative positioning softened.
Net long positions dipped to approximately 54,200 contracts, even as open interest climbed toward 316,000.
It seems more like a shift in priorities than a widespread departure. While exposure is being dialled back, the market is still engaged.
Looking ahead for AUD/USD
Near term: the pair’s fortunes will continue to be influenced by the US dollar and global risk appetite. The spotlight shifts to the preliminary March Purchasing Managers’ Index (PMI) data.
Risks: The AUD is sensitive to shifts in risk appetite, any indications of economic fragility in China, and a rising US dollar.
Technical levels
In the daily chart, AUD/USD trades at 0.7039. The near-term bias stays mildly bullish as spot holds well above the rising 55-, 100- and 200-day Simple Moving Averages (SMAs), underscoring an established uptrend despite the latest pullback from last week’s highs. Price trades above the 23.6% Fibonacci retracement at 0.6976 measured from the 0.6421 low to the 0.7147 high, keeping the latest dip framed as a shallow correction within that broader advance. The Relative Strength Index (RSI) hovers just below 50 after retreating from overbought territory, indicating momentum has cooled but not flipped decisively in favour of sellers, while the declining Average Directional Index (ADX) around 21 signals trend strength has eased into a more consolidative phase.
Initial support is seen at the horizontal level of 0.6897, reinforced beneath by the 38.2% retracement at 0.6870, where a break would expose the 0.6660 and 0.6593 supports aligned near the rising medium- and long-term SMAs. Below these, 0.6414 and 0.6373 form a deeper demand zone that, if reached, would mark a significant deterioration of the current bullish structure. On the upside, immediate resistance emerges at the recent Fibonacci swing high near 0.7147, just below the horizontal cap at 0.7158, with a daily close above this cluster opening the way toward 0.7283 and then 0.7661. As long as spot holds above 0.6897, the technical backdrop favours dip-buying over a sustained reversal.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: supported, but conditional
Australia’s resilient backdrop and a still restrictive RBA continue to underpin the AUD.
But this is not a one-way story. The currency remains highly sensitive to global conditions.
When risk holds, AUD performs. When volatility rises, the US Dollar takes control.
Bias remains supportive, but far from unconditional.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
