Aussie Slumps As US Dollar Gains Ground. Forecast as of 25.07.2025
Markets are displaying an excess of confidence. The S&P 500 is reaching record highs, and the yuan has climbed to an eight-month high against the US dollar. However, there is a possibility that the trade war between the United States and China might resume. Let’s discuss this topic and make a trading plan for the AUDUSD pair.
The article covers the following subjects:
Major Takeaways
- The RBA is in no hurry to cut rates.
- The Australian economy enjoys a Goldilocks scenario.
- The US-China trade war will change the situation.
- Selling the AUDUSD pair with the targets at 0.651 and 0.6435 is relevant.
Weekly Fundamental Forecast for Australian Dollar
A successful policy is 98% communication and 2% action. The words of former Federal Reserve Chairman Ben Bernanke are particularly relevant to the Reserve Bank of Australia (RBA). After the unexpected decision to maintain the cash rate at 3.85% in July, the head of the RBA, Michele Bullock, was unable to persuade investors that monetary expansion is a long-term strategy, not a short-term solution. The RBA may consider taking a pause. As a result, the AUDUSD pair received bullish momentum, but the rally was short-lived.
If the ECB is willing to adopt a passive stance, why should the Reserve Bank of Australia (RBA) not do the same? The economy is thriving in a Goldilocks scenario, with inflation under control and the labor market robust. At the same time, Michele Bullock’s remarks that the combination of low unemployment and recent strong job growth is remarkable and very welcome could lead the market to question the effectiveness of monetary policy easing in August.
Australia’s Unemployment, CPI, and Wages (YoY)
Source: Bloomberg.
The derivatives market and Bloomberg experts concur that by the end of the first quarter of 2026, the RBA’s key rate will be reduced by 75 basis points to 3.1%. Bank of America and Vanguard point to two acts of monetary expansion and a pronounced disinflationary trend in Australia. Along with the stability of the labor market, this explains the RBA’s passivity. Due to these favorable market conditions, strategies that involved purchasing the AUDUSD pair on dips proved to be profitable. However, the situation is likely to change during the rest of the year.
The Australian dollar’s rally was driven by several factors, including Michele Bullock’s cautious approach, the heightened global risk appetite, and the success of the Chinese economy. The S&P 500 index continues to reach record highs, while the yuan, which has seized its opportunity, risks stumbling. Standard Chartered Bank anticipates an increase in the USDCNH pair by the close of the year, a prediction influenced by factors such as expanding GDP, exports, and current account trends, which are anticipated to dissipate.
Chinese Yuan Performance
Source: Bloomberg.
The recent agreement between Washington and Beijing has contributed to a positive shift in the US stock indexes, which have rebounded from their April lows. However, time is of the essence, and the agreement will reach its expiration on August 12. Currently, China pays 30-50% for access to the US market. In light of his recent successes with other countries, Donald Trump may want to demand more. An escalation of the trade conflict is likely to hurt the S&P 500, the yuan, and its proxy currency, the Australian dollar.
Weekly AUDUSD Trading Plan
Despite the success of the previous strategy to buy the AUDUSD pair at 0.6515, the wind has changed, forcing bulls to retreat. The deterioration in global risk appetite and fears of a trade war between the US and China could push the pair down to 0.651 and 0.6435. The recommendation is to sell.
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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