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AUD/USD Price Forecast: Is a Bullish Reversal Taking Shape?
- The Australian Dollar extends gains against the US Dollar after RBA’s Hauser flags upside risks to inflation.
- Despite effective monetary policy, the inflation outlook remains worse, according to RBA’s Hauser.
- Expectations that the Fed will keep interest rates unchanged this month weigh on the US Dollar.
Gains in the Australian Dollar (AUD) against the US Dollar (USD) continue on Wednesday, with the pair up 0.26% at around 0.7015 during early European trading. Supporting the Aussie were remarks earlier in the day from Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser, who warned that the “inflation outlook appears worse than forecast and slightly above expectations”.
How Is the Australian Dollar Performing Today?
The Australian Dollar recorded its strongest performance against the New Zealand Dollar today. Its percentage changes 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 movements between the 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. For instance, choosing the Australian Dollar on the left and following its row horizontally to the US Dollar gives the percentage change for AUD (base)/USD (quote) in the corresponding cell.
RBA Hauser noted, “Inflation has remained elevated for an extended period,” before adding, “Quarterly trimmed mean likely to exceed expectations.” She also said, “Monetary policy effective, but inflation outlook deteriorates.”
Expectations of another near-term interest rate increase by the central bank could emerge following RBA Hauser’s warning that price pressures might stay elevated.
Caution marks trading in the US Dollar as the Federal Reserve (Fed) observes its blackout period before the policy decision later this month. Interest rates are widely expected to remain within the 3.75%-4.00% range.
AUD/USD Technical Analysis: Can the Pair Hold Above Trend Support?
A mildly positive near-term bias is evident on the daily chart, where AUD/USD, at 0.7014, remains just above its 20-period exponential moving average (EMA) of 0.6995 and continues to hold underlying trend support. The case for a steadily rising base is reinforced 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 sharp move in either direction.
The nearer falling trend line, originating at 0.7020, presents the first upside resistance, followed by a more substantial hurdle at the higher descending trend line drawn from 0.7138. Should the pair decline, the 20-period EMA at 0.6995 offers initial support. Beyond that, the rising trend-line support cluster around 0.6904/0.6903 is likely to attract buyers seeking to defend the broader corrective rise.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
RBA: Key Questions Answered
Responsibility for Australia’s monetary policy and interest rates rests with the Reserve Bank of Australia (RBA). A board of governors takes decisions at 11 scheduled meetings each year, supplemented by ad hoc emergency meetings when necessary. Maintaining price stability, defined as inflation of 2-3%, is the RBA’s primary mandate. It is also tasked “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Changes in interest rates are its principal policy instrument: comparatively high rates strengthen the Australian Dollar (AUD), while lower rates have the opposite effect. Quantitative easing and quantitative tightening are among its other tools.
Inflation was traditionally regarded as unfavourable for currencies because it erodes the value of money. In modern times, however, the easing of cross-border capital controls has reversed that relationship. A moderate increase in inflation now tends to prompt central banks to raise interest rates. Those higher rates attract additional capital from global investors looking for attractive returns on their money, boosting demand for the domestic currency, which in Australia’s case is the Aussie Dollar.
A currency’s value can respond to macroeconomic releases because these indicate the health of the economy. Rather than committing funds to unstable, contracting economies, investors favour those that offer stability and growth. The resulting increase in capital inflows raises overall demand for the domestic currency and its value. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are established indicators that can move AUD. Economic strength may also prompt the Reserve Bank of Australia to raise interest rates, providing further support to AUD.
When interest rate cuts alone cannot restore credit flows through the economy, Quantitative Easing (QE) is deployed in extreme circumstances. Under QE, the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) to purchase assets from financial institutions, usually government or corporate bonds. These purchases supply the institutions with much-needed liquidity. The outcome is typically a weaker AUD.
The opposite of QE, quantitative tightening (QT) is introduced after QE once an economic recovery is under way and inflation begins to increase. Under QE, the Reserve Bank of Australia (RBA) supplies liquidity to financial institutions by purchasing government and corporate bonds. Under QT, it halts further asset purchases and no longer reinvests the principal from maturing bonds in its existing holdings. This would support, or be bullish for, the Australian Dollar.
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