The Australian Dollar (AUD) remains under sustained downside pressure, dragging AUD/USD to multi-week lows. While persistently elevated domestic inflation and the Reserve Bank of Australia’s (RBA) cautious stance should help limit the downside to some extent, escalating geopolitical tensions continue to weigh on sentiment across the broader risk complex.
The Australian Dollar (AUD) manages to regain some composure on Tuesday, motivating AUD/USD to stage a mild comeback after meeting some contention around the 0.6830 region earlier on Tuesday.
The small uptick in spot follows the loss of momentum in the US Dollar (USD), as investors keep assessing the likelihood of a potential end to the US military campaign in Iran.
Australia: holding up, but losing some edge
Australia still looks solid on the surface, and that continues to put a floor under the Aussie. But the story is starting to lose a bit of momentum.
The mix hasn’t really changed: growth is holding up, inflation remains elevated, and the RBA is still leaning hawkish. That combination continues to support the AUD.
But the cracks are beginning to show at the margin. Indeed, the March’s Purchasing Managers’ Index (PMI) is expected at 50.1 in manufacturing and 46.6 in services, pointing to a gradual cooling in activity. Trade is still doing its job, with a A$2.631 billion surplus at the start of the year.
Zooming out, the economy is still expanding at a decent pace after the Gross Domestic Product (GDP) increased by 0.8% QoQ in Q4 and 2.6% YoY, while the labour market is only easing slowly, with the Unemployment Rate rising to 4.3% and the Employment Change up by 48.9K.
However, inflation remains the key issue. Indeed, the latest data show only modest progress, as the Consumer Price Index (CPI) gained 3.7% over the last twelve months, the Trimmed Mean rose by 3.3%, and the Weighted Median gained 3.5% from a year earlier. That said, disinflation is happening, but not fast enough for comfort.
From the RBA’s perspective, the job is far from done. Inflation is not expected back at target until mid 2028, which keeps the pressure firmly in place.
China: stabilising, but not driving
China is no longer the engine behind the Aussie, more of a stabiliser.
Growth came in at 4.5% in Q4 2025, retail sales rose 2.8% YoY, and trade conditions remain broadly supportive. But beneath the surface, the picture is more mixed.
That said, the official PMI data from the National Bureau of Statistics (NBS) still point to contraction, while private surveys like RatingDog remain in expansion territory.
Inflation dynamics reinforce that middle ground: the CPI rose 1.2% YoY, while Producer Price Index (PPI) remained in deflation at -0.9% YoY. That allows the People’s Bank of China (PBoC) to stay on hold, keeping the Loan Prime Rates (LPR) unchanged at 3.00% and 3.50% for the one-year and five-year tenors.
For the AUD, the takeaway is simple: China is no longer a headwind, but it is not a tailwind either.
RBA: bias clear, timing the debate
The RBA’s latest move tells you everything about where policy stands. A tight 5–4 vote to hike the Official Cash Rate (OCR) to 4.10% highlights just how finely balanced things are.
The message itself hasn’t changed: capacity constraints remain, and higher oil prices could add to inflation in the near term. Governor Michele Bullock was clear: excess demand is still the core issue.
The debate now is all about timing, as some policymakers want to pause and assess the impact of external shocks.
On this, the Minutes, released on Tuesday, highlighted just how uncertain the outlook has become. After two rate hikes this year, policymakers acknowledged they have limited visibility on where rates are headed next, with the evolving geopolitical situation making the path forward harder to gauge with any confidence.
Markets, in the meantime, are still leaning towards further tightening, with nearly 59 basis points pencilled in by year end.
AUD positioning: leaning long, but without conviction
Positioning is starting to look more constructive, but not convincingly so.
The latest Commodity Futures Trading Commission (CFTC) data show net longs building above 70K contracts for the week ending March 24. But price is not confirming it, AUD/USD has drifted from above 0.7100 to below 0.7000.
That difference is important.
It seems like investors are getting ready for a medium-term AUD narrative, but they don’t have any proof yet. At the same time, open interest has gone down, which means that there isn’t a lot of strong belief behind the move.
What does it mean?
This configuration is weak Rising longs without price confirmation make a squeeze more likely, particularly if the US Dollar keeps getting stronger or the macroeconomic situation changes.
What about FX
The AUD still has a strong macro basis, but the way it is positioned exposes some weakness in the short-term horizon. Without more follow-through, longs might become a headwind instead of support, especially when risk is modest.
AUD/USD: What may happen next
- Base case (range, with a little lean toward the downside): AUD/USD stays below 0.7050 and trades with a weak tone since the USD is strong and geopolitics are in charge.
- Bull case (requires something to happen): A strong improvement in global risk sentiment or worse US data might send spot back over 0.7100, which would confirm the lengthy gain.
- Bear instance (highest uneven risk):If the USD becomes stronger or if China’s economy or risk sentiment gets worse, it might cause a squeeze that sends the price into the 0.6800 area.
What to look for
Near term: the key things that affect the market are the US dollar’s movements, risk sentiment, and geopolitical news.
Risks: If China’s economy slows down, oil prices go up, or the Fed changes its mind, the balance may swiftly flip.
Technical corner
In the daily chart, AUD/USD trades at 0.6892. The near-term bias is mildly bearish after the pair slipped back below the 38.2% Fibonacci retracement at 0.6870 measured from the 0.6421 low to the 0.7147 high, with price now hovering just above that threshold. Daily closes have retreated toward the rising 55- and 100-day Simple Moving Averages (SMAs) clustered between 0.6990 and 0.6820, hinting that the broader uptrend is losing momentum but not yet broken, while the pair still holds well above the 200-day SMA near 0.6680. The Relative Strength Index (RSI) has eased to around 40, reinforcing a cooling of bullish pressure and leaving room for further downside in the short term as directional strength, reflected by a stabilising Average Directional Index (ADX) in the mid-20s, points to a moderating but intact trend backdrop.
Immediate resistance is seen at 0.7158, ahead of 0.7283 and 0.7661, all framing the broader topside. On the downside, the 50% retracement at 0.6784 is the first support to watch, and then the key horizontal support at 0.6660, which sits near the 200-day SMA and marks a pivotal floor. A deeper break would bring 0.6593 and 0.6414 into focus, though as long as the pair holds above 0.6660, the pullback would remain a correction within the medium-term uptrend rather than a trend reversal.
(The technical analysis of this story was written with the help of an AI tool.)
Bottom line: supported, but vulnerable
The Aussie still has a good macro narrative behind it, and the RBA isn’t backing down.
But this isn’t a good setting for a bull market.
When risk is high, the AUD does well. The US Dollar takes control when things become more volatile.
The bias is still in favour, but the risks are beginning to shift to the negative in the near run.
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.
