AUD/USD Forecast: CPI, RBA Policy and U.S. Dollar Weakness in Focus

Published: August 21, 2026

Key Points

• AUD/USD is trading near 0.7150 after rallying from 0.6865, supported by persistent U.S. dollar weakness despite softer Australian labor data.
• Australia’s July employment fell by 15,800 and unemployment rose to 4.5%, reducing near-term RBA rate-hike expectations ahead of the next CPI release.
• A hot CPI print could push AUD/USD through 0.7160-0.7190, while softer inflation may expose 0.7070-0.7050 and a break below 0.7100 would weaken the bullish trend.

U.S. Dollar Weakness and Fiscal Concerns

The U.S. Dollar Index (DXY) has lost approximately 9% in value from its cycle peak of 110.176 reached in January 2025. The dollar has been trading mostly sideways in 2026, remaining below key daily moving averages. Factors contributing to this decline include trade wars, geopolitical tensions, and doubts about the Federal Reserve’s inflation-fighting credibility. A significant concern is the structural erosion of confidence in U.S. fiscal sustainability, highlighted by the public debt surpassing $40 trillion.

Australian Dollar Overview

As of the article's writing, AUD/USD was trading at around 0.7150, near a multi-week high, having rallied from a late-June low of 0.6865. The pair faces competing pressures: a weak U.S. dollar supports the pair, while a slowing Australian economy limits gains. Recent data showed a decline in Australian employment and an increase in the unemployment rate, prompting a reduction in rate-hike expectations from the Reserve Bank of Australia (RBA).

Upcoming Australia CPI and Its Impact

A higher-than-expected CPI print could reinforce the RBA’s hawkish bias, pushing AUD/USD through the 0.7160–0.7190 resistance zone. Conversely, a softer reading could confirm that the RBA can remain on hold, potentially dragging AUD/USD back towards the 0.7070–0.7050 support area.

Key Themes for Investors

• Inflation vs. Labor-Market Softening: The RBA faces challenges with a cooling labor market and sticky inflation.
• Middle East and Oil Prices: The U.S.-Iran conflict has driven Brent crude prices above $93 per barrel, amplifying inflation concerns.
• U.S. Fiscal Credibility: The $40 trillion debt milestone has dented confidence in the dollar, encouraging diversification into alternative currencies.
• El Niño Weather Risk: Potential impacts on Australia’s wheat harvest could create inflation shocks complicating RBA policy decisions.
• Relative Monetary Policy: The RBA and Fed's policy gap is expected to compress, with markets anticipating further Fed tightening.

AUD/USD Bullish Trend Holds Above 0.7100

The general trend in AUD/USD remains bullish, with a focus on not seeking selling opportunities unless a technical reversal signal arises. A drop below 0.7100 would invalidate the bullish trend. The stronger AUD is helping to keep inflation at bay, while a weaker USD is raising inflation fears in the U.S., potentially prompting the Fed to tighten policy more aggressively.