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AUD/USD Price Forecast: Bullish reversal appears to be taking shape
- Warnings of upside inflation risks from RBA’s Hauser accompany further Australian Dollar gains against the US Dollar.
- Despite effective monetary policy, the inflation outlook remains weaker, according to RBA’s Hauser.
- Expectations that the Fed will keep interest rates unchanged this month weigh on the US Dollar.
A 0.26% rise takes the Australian Dollar (AUD) to around 0.7015 against the US Dollar (USD). The pair extends its run of gains in early European trading on Wednesday. Supporting the advance are warnings earlier in the day from Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser that the “inflation outlook appears worse than forecast and slightly above expectations”.
Australian Dollar: Today’s Currency Moves
The Australian Dollar (AUD) recorded its largest gain against the New Zealand Dollar today. Its percentage moves against the major currencies listed are shown in the table below.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.11% | 0.12% | 0.00% | 0.02% | -0.25% | 0.19% | 0.18% | |
| EUR | -0.11% | -0.07% | -0.12% | -0.11% | -0.30% | 0.02% | 0.02% | |
| GBP | -0.12% | 0.07% | -0.06% | -0.06% | -0.23% | 0.09% | 0.09% | |
| JPY | 0.00% | 0.12% | 0.06% | 0.00% | -0.16% | 0.15% | 0.16% | |
| CAD | -0.02% | 0.11% | 0.06% | -0.01% | -0.17% | 0.16% | 0.16% | |
| AUD | 0.25% | 0.30% | 0.23% | 0.16% | 0.17% | 0.33% | 0.32% | |
| NZD | -0.19% | -0.02% | -0.09% | -0.15% | -0.16% | -0.33% | 0.00% | |
| CHF | -0.18% | -0.02% | -0.09% | -0.16% | -0.16% | -0.32% | -0.00% |
Percentage moves between major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. Selecting the Australian Dollar on the left and following its row across to the US Dollar, for instance, gives the percentage change for AUD (base)/USD (quote) in the corresponding cell.
RBA’s Hauser said, “Inflation has remained elevated for an extended period,” before adding, “Quarterly trimmed mean likely to exceed expectations.” She also stated, “Monetary policy effective, but inflation outlook deteriorates.”
Expectations of another near-term interest rate increase by the central bank could follow RBA Hauser’s warning that price pressures may stay elevated.
With the Federal Reserve (Fed) now in its blackout period ahead of this month’s policy decision, trading in the US Dollar remains cautious. Expectations strongly favour the Fed holding interest rates within the existing 3.75%-4.00% range.
AUD/USD: Technical Outlook
At 0.7014 on the daily chart, AUD/USD remains marginally above its 20-period exponential moving average (EMA) of 0.6995. Respect for underlying trend support points to a mildly positive near-term bias. A gradually rising base is also indicated by two ascending support trend lines originating around 0.6904 and 0.6903. Meanwhile, the Relative Strength Index (14) reads 50.96, close to neutral, suggesting balanced momentum rather than a forceful move in either direction.
The nearer descending trend line, originating at 0.7020, offers immediate upside resistance. A stronger hurdle lies at the higher downward-sloping trend line drawn from 0.7138. Below current prices, the 20-period EMA at 0.6995 provides initial support, followed by the cluster of rising trend lines around 0.6904/0.6903. Buyers are likely to defend the broader corrective advance at that cluster.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
RBA: Key Questions
Australia’s interest rates and monetary policy are determined by the Reserve Bank of Australia (RBA). A board of governors takes decisions at 11 scheduled meetings each year, with emergency meetings convened as needed. Maintaining price stability, defined as inflation of 2-3%, is the RBA’s primary mandate. It also seeks “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Interest rate increases and cuts are its principal means of meeting these objectives. Relatively higher rates strengthen the Australian Dollar (AUD), while lower rates have the opposite effect. Quantitative easing and tightening are additional tools available to the RBA.
The traditional view of inflation as harmful to currencies reflected its erosion of money’s value. Since cross-border capital controls were relaxed, however, the relationship has reversed in modern times. Moderately higher inflation now tends to prompt central banks to raise interest rates. Those higher rates attract capital from global investors seeking better returns, lifting demand for the domestic currency. In Australia, that currency is the Australian Dollar.
By measuring an economy’s health, macroeconomic data can affect the value of its currency. Safe, expanding economies attract investors more readily than unstable, contracting ones. Larger capital inflows lift overall demand for the domestic currency and increase its value. AUD can therefore respond to established indicators including GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys. Economic strength may also lead the Reserve Bank of Australia to raise interest rates, providing further support for AUD.
When interest rate cuts alone cannot restore credit flows, Quantitative Easing (QE) offers a policy tool for extreme conditions. Under QE, the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) to purchase assets from financial institutions, typically government or corporate bonds. These purchases supply much-needed liquidity to those institutions. The usual result is a weaker AUD.
As the opposite of QE, Quantitative tightening (QT) follows a period of easing once economic recovery is under way and inflation begins to rise. During QE, the Reserve Bank of Australia (RBA) supplies liquidity by purchasing government and corporate bonds from financial institutions. QT instead involves halting further asset purchases and ceasing to reinvest principal from maturing bonds already held. This would support the Australian Dollar, representing a positive or bullish influence.
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