The Reserve Bank of Australia’s decision to pause its monetary tightening cycle after three consecutive cash rate hikes has deprived the AUD/USD pair of its main advantage. However, that advantage was not the only driver behind the aussie’s rally. Let’s discuss this topic and develop a trading plan.
The article covers the following subjects:
Major Takeaways
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The RBA is not expected to raise interest rates.
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China’s economy is slowing down.
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Stock indices are supporting the Australian dollar.
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The direction of the AUD/USD depends on the US employment report.
Weekly Fundamental Forecast for Australian Dollar
The Australian dollar is gradually losing its status as a unique currency and becoming just another major currency. Three interest rate hikes by the Reserve Bank of Australia earlier this year made the aussie one of the Forex market’s top performers, but a prolonged pause in the tightening cycle prompted speculators to reduce their AUD/USD positions. Now, many are looking for an opportunity to re-enter the market as the fundamental backdrop begins to improve.
What should a central bank do when inflation is slowing but remains above the upper end of its 2–3% target range? Or when unemployment has risen to 4.4%, exceeding the Reserve Bank’s forecast, while job creation remains strong? The most likely course of action is to wait for additional data—and that is exactly what the RBA is expected to do at its August 11 meeting. According to Bloomberg, the central bank is widely expected to leave the cash rate unchanged.
Australian Inflation
Source: Bloomberg.
The futures market is also becoming less convinced that the RBA will deliver another rate hike. Following the release of June’s inflation data, derivatives traders lowered the probability of additional monetary tightening in 2026 from 90% to 60%. Consumer inflation slowed to 3.8%, below Bloomberg’s forecast of 4.0%, while core inflation eased to 3.6% versus expectations of 3.7%. SEB believes these figures do not justify another increase in the cash rate. BNY, however, argues that inflation remains persistent enough to preserve the Reserve Bank’s hawkish bias.
Indeed, RBA Governor Michele Bullock has emphasized that inflation remains too high and could accelerate again, partly because of developments in the Middle East. In her view, further moderation in domestic demand may still be required to return inflation to the target range.
In addition to expectations of tighter RBA policy, the AUD/USD pair was supported between January and May by rallying US equity markets and a stronger Chinese yuan. The latest PMI data suggest that China’s economy will continue to expand, although at a slower pace than before.
China’s Manufacturing PMI
Source: Bloomberg.
More encouraging news is coming from the US stock market. The Dow Jones Industrial Average has notched its 24th record high of 2026, extending its winning streak to five consecutive sessions. The S&P 500 has also reached a fresh all-time high after more than 40 days without a record close. Over the past three decades, this pattern has occurred 22 times, and in roughly 70% of those cases, the broad-market index posted further gains over the following six and twelve months.
Among S&P 500 companies that have already reported, earnings have risen by 29%, while the share of companies delivering positive earnings surprises has climbed to a five-year high of 86%.
Weekly AUDUSD Trading Plan
The fundamental backdrop is still supportive for the Australian dollar. However, the next major move in AUD/USD quotes will depend on upcoming US labor market and inflation data. Weak employment figures would strengthen the case for buying the pair with a target near 0.7300. Conversely, stronger-than-expected employment and inflation data could trigger a decline toward the 0.6980–0.7000 area.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of AUDUSD in real time mode
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