0.7000: AUD/USD Price Forecast Points to Hesitant Bulls Above This Level Amid Dovish RBA and USD Weakness

A second consecutive day of gains keeps AUD/USD supported as the USD weakens broadly.
Ahead of the key US NFP release, the RBA’s dovish policy outlook limits support for the Aussie.
Bullish traders face a technical backdrop that calls for caution before taking positions for further gains.

AUD/USD remains above the psychological 0.7000 level during the Asian session. Buying interest extends into a second consecutive day on Thursday, with a Democratic sweep in US midterm elections and falling US bond yields pushing the US Dollar (USD) to its lowest since late September. However, follow-through remains limited. That calls for caution before positioning for a continuation of the previous day’s strong rebound from around the mid-0.6900s, a two-and-a-half-week low.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Tuesday’s dovish rate increase from the Reserve Bank of Australia (RBA) signalled a move towards a more cautious, wait-and-see approach. For the first time since June, its official statement omitted explicit references to possible further increases. The central bank also stressed growing unemployment risks, reducing the likelihood of a December move. This backdrop is weighing on the Australian Dollar (AUD) and restricting AUD/USD’s upside.

RBA rate peak in view as OCBC cites weaker growth and higher unemployment

A less favourable domestic environment leaves less scope for additional RBA tightening, according to OCBC analysts. They note that “the economy is slowing, housing prices have fallen significantly and the unemployment rate has risen”. Given that softer backdrop, they state that “we expect no more hike in this cycle, and the next policy move is likely to be a cut,” reinforcing their assessment that the current cash rate is the peak of this tightening cycle.

The closely watched US monthly employment release, commonly known as the Nonfarm Payrolls (NFP) report, is also keeping traders from committing to aggressive directional positions. They appear inclined to await the data. Speeches by influential FOMC members will also be scrutinised for indications of the US Federal Reserve’s (Fed) future policy direction. Developments in the Middle East crisis will provide another source of fresh impetus for the USD and AUD/USD.

Below the 200-day Simple Moving Average (SMA) at 0.7058, AUD/USD retains a slightly bearish short-term technical bias. It also trades beneath a tightly packed Fibonacci retracement zone beginning at the 38.2% level near 0.7024. A modestly positive Moving Average Convergence Divergence (MACD) reading and a Relative Strength Index (RSI) close to the neutral 50 line suggest stabilisation, rather than a decisive bullish reversal.

A break above the 38.2% Fibonacci retracement at 0.7024 would therefore likely encounter strong resistance, with gains expected to be contained near the 200-day SMA at 0.7058. Beyond that lies the 50.0% retracement at 0.7065. Further hurdles stand at the 61.8% Fibonacci level of 0.7105, the 78.6% level at 0.7163 and the cycle high near 0.7236. If prices decline, the 23.6% Fibonacci level at 0.6974 offers initial support. A stronger structural floor lies around 0.6893, the anchor of the current Fibonacci swing.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

AUD/USD: daily price chart

RBA: key questions

Reserve Bank of Australia: what is its role in the Australian Dollar?

Australia’s interest rates and monetary policy are determined by the Reserve Bank of Australia (RBA). A board of governors makes these decisions at 11 scheduled meetings each year, with emergency meetings convened when necessary. 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. Higher relative rates tend to strengthen the Australian Dollar (AUD), while lower relative rates have the opposite effect. Quantitative easing and quantitative tightening are among the RBA’s other policy tools.

Inflation data: what drives its effect on the Australian Dollar?

Traditionally, inflation was considered harmful to currencies because it erodes the value of money. With cross-border capital controls relaxed in modern times, however, the relationship has reversed. A moderate rise in inflation now tends to prompt central banks to increase interest rates. Those higher returns attract capital from international investors seeking a profitable destination for their funds. The resulting inflows lift demand for the domestic currency, which in Australia’s case is the Australian Dollar.

Economic indicators: how do they shape the Australian Dollar’s value?

An economy’s health is reflected in macroeconomic data, which can affect its currency’s value. Rather than place funds in unstable, contracting economies, investors favour those offering safety and growth. Larger capital inflows raise overall demand for the local currency and increase its value. AUD can respond to established indicators including GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys. Economic strength may also prompt the Reserve Bank of Australia to raise interest rates, providing additional support for AUD.

Quantitative Easing (QE): what does it mean for the Australian Dollar?

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, usually government or corporate bonds. These purchases supply the institutions with much-needed liquidity. The usual consequence is a weaker AUD.

Quantitative tightening (QT): what are the implications for the Australian Dollar?

As the opposite of QE, quantitative tightening (QT) follows once an economic recovery is under way and inflation begins to rise. During QE, the Reserve Bank of Australia (RBA) supplies liquidity by buying government and corporate bonds from financial institutions. Under QT, it ceases further asset purchases and no longer reinvests the principal received when bonds in its portfolio mature. This would support the Australian Dollar, giving it a positive, or bullish, effect.