Fading enthusiasm for AI stocks in the US, coupled with the prospect of further Fed rate hikes and growing expectations of economic stimulus in China, is boosting the AUD/USD. Let’s explore these factors and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- The Reserve Bank of Australia has not ruled out a rate hike.
- Money from the tech sector is flowing from the US to Australia.
- A stronger yuan is helping the aussie.
- Long positions can be considered as long as the AUDUSD pair remains above 0.6990.
Weekly Fundamental Forecast for Australian Dollar
The Forex market is like the ocean where the winds can change at any moment. Just yesterday, the Australian dollar’s prospects looked rather gloomy. Markets saw little chance of the Reserve Bank of Australia raising interest rates in 2026. The AI boom was drawing capital back to the US, while signs of weakness in the Chinese economy were casting doubt on the outlook for Australia’s largest export market. Today, the outlook for the AUD/USD is beginning to look considerably brighter.
In 2026, the RBA has tightened monetary policy more aggressively than its major counterparts, raising its cash rate by 100 basis points. Following the September hike, investors had good reason to expect an extended pause. Indeed, derivatives markets priced in just a 25% probability of another rate hike in November and a 50% chance of one in December. Meanwhile, markets were almost fully pricing in a Fed rate hike from 4% to 4.25% by the end of the year.
Central Banks’ Interest Rates
Source: Bloomberg.
The key question is what happens next. New York Fed President John Williams sees no need for further monetary tightening in 2027. However, the minutes of the Fed’s latest meeting suggest that some officials believe current policy is not restrictive enough to bring inflation under control. This signals that further interest rate hikes remain a possibility.
Meanwhile, China, a key market for Australian exports, may be in better shape than it initially appears. According to Bank of America, disappointing third-quarter data on GDP, retail sales, investment, and industrial production could prompt Beijing to step up monetary stimulus. Such measures would support Chinese demand and potentially provide an additional tailwind for the AUD/USD pair.
Australian Exports
Source: Bloomberg.
Improving demand, supported by stimulus measures, and a stronger yuan would be a perfect mix for Australian exporters and the broader economy. According to Goldman Sachs, the renminbi remains undervalued. China’s trade surplus, which reached $805.5 billion in January–August, could reinforce expectations of further yuan appreciation, with the USD/CNH potentially sliding further toward 6.4.
Meanwhile, growing competition from Chinese companies is putting pressure on US semiconductor manufacturers. As enthusiasm for AI cools, investment capital may begin flowing into other markets, including Australia, which is emerging as an attractive destination for technology giants. Notably, some of these companies are raising funds for data center projects by issuing bonds denominated in Australian dollars.
Weekly Trading Plan for AUD/USD
The headwinds facing AUD/USD are turning into tailwinds. The second of our previously established downside targets at 0.6900 and 0.6800 now appears increasingly out of reach. Instead, the pair’s ability to withstand rising US inflation could attract fresh buying interest, provided it holds above 0.6990.
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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