AUD/USD Forecasters Shift Tone, As Central Bank Comments Cast Shadow

The Australian dollar’s two-month climb toward 0.72 US cents is facing mounting pushback, with some of the currency’s most accurate forecasters warning that markets have pushed Reserve Bank of Australia rate-hike expectations too far.

With second-quarter GDP due Wednesday and a freshly hawkish signal from the Federal Reserve’s Jackson Hole symposium, a growing cohort of brokers sees the Aussie’s rally as close to exhausted and favours a retracement toward the 0.69–0.70 region by year-end.

AUD/USD closed Friday at 0.7164 and has traded as high as roughly 0.7197 in recent sessions, levels last seen in mid-May. The pair has gained more than 3.5% since the start of July, powered by sticky domestic inflation, increasingly aggressive bets on an RBA rate hike, and a broadly soft US dollar.

The bearish calls are now stacking up, with Santander and Danske both targeting 0.70, with Danske flagging that the level could be reached as early as December, a relatively front-loaded downside scenario that would unwind most of the past two months’ gains.

What Is Driving The Shift?

At the heart of the debate is the RBA’s policy path. The central bank left the cash rate at 4.35% in August following three hikes earlier this year, and minutes from that meeting revealed the board debated a 25-basis-point increase before judging current settings “sufficiently restrictive” for now.

A hot inflation print since then has forced a sharp repricing: Deutsche Bank and NAB now forecast a hike as early as the September 29 meeting, with Deutsche Bank economists describing underlying inflation as “intolerably high.” Commonwealth Bank expects the RBA to “lose patience” and deliver a quarter-point move to 4.6% in November, while flagging a risk of action in September; ANZ and Goldman Sachs also favour November with a September risk. Westpac and HSBC remain in the on-hold camp, noting the RBA’s own caveat that monthly CPI readings are still a partial indicator.

The data backdrop is genuinely mixed, as headline inflation eased to 3.9% in the second quarter from 4.1%, but core measures rose to 3.6% from 3.5%, and consumer inflation expectations have climbed to 4.9%. Trade data offered support, with a A$1.929 billion surplus in June reversing May’s A$2.367 billion deficit. Yet growth is decelerating: first-quarter GDP slowed to 0.3% quarter-on-quarter from 0.9%, with annual growth at 2.5%, meaning the RBA would be tightening into a cooling economy.

Market pricing implies close to a full 25-basis-point hike by year-end, but with far less conviction around September specifically, a gap Santander and Danske are exploiting, with both expecting the RBA to hold next month and push any move into the fourth quarter.

The external pillar of the rally may also be softening. US dollar weakness has been a key tailwind, and the latest core PCE reading coming in line with forecasts, left markets pricing roughly a 62% chance the Fed holds in September, had kept that support intact. But Fed Chair Kevin Warsh’s hawkish tone at Jackson Hole threatens to re-anchor expectations toward a firmer greenback, which would blunt the policy-divergence narrative that has flattered the Aussie.

What To Watch

Wednesday’s second-quarter GDP release shapes as the next decisive test. A weak print would strengthen the case that the RBA hesitates, validating the bears’ view that the hawkish premium embedded in the currency is vulnerable. Labour-market data follow as the other major domestic checkpoint before the September 29 decision.

Technically, the picture is two-sided. AUD/USD remains above its 200-day simple moving average near 0.6960, keeping the medium-term structure constructive. But momentum indicators look stretched after the grind toward 0.72, and strategists have mapped a potential retracement through 0.7075–0.7010, with a loss of the 0.6960 zone risking a deeper bearish wave. Seasonality adds a statistical headwind: the Aussie has fallen an average of about 1% in September over the past five years.

For now, the tactical edge sits with the bears, but sticky core inflation and a still-hawkish RBA mean any correction may prove a pause rather than a reversal, leaving GDP, the Fed and Beijing to referee the next sustained move.