AUD/USD is trading near 0.7020 in European hours Friday after recovering modestly from a sharp two-session decline. The Australian Dollar found support around the 0.7000 psychological level as markets shifted attention toward the Reserve Bank of Australia policy decision scheduled for Tuesday. The RBA has kept its cash-rate target at 4.35% since August, while inflation remains above its 2%-3% target range. Meanwhile, expectations for additional Federal Reserve tightening have supported the US Dollar and weighed on the Australian currency.
RBA Decision Takes Center Stage
The RBA’s upcoming decision is the main domestic event for AUD/USD. The central bank left its cash rate unchanged at 4.35% in August after raising rates three times earlier in 2026. The RBA said inflation remained too high and was unlikely to return to the midpoint of its target range until early 2028. It also warned that higher energy costs could keep price pressures elevated.
Australia’s labor market remains an important input for policymakers. The RBA said unemployment had increased to 4.4% in June but described labor-market conditions as still somewhat tight. Its August forecasts showed unemployment gradually rising while inflation remains above target in the near term.
The Australian Dollar therefore remains sensitive to any change in expectations surrounding the RBA’s next policy move.
- RBA cash rate: 4.35%
- Next RBA decision: September 29
- AUD/USD: Around 0.7020
- Immediate psychological support: 0.7000
Fed Expectations Support the Dollar
The US Dollar has remained firm as markets assess the possibility of additional Fed rate hikes. CME Group reported that markets were pricing roughly a 58% probability of a 25-basis-point increase at the September meeting as of September 8.
That outlook has strengthened the policy-rate differential between Australia and the United States in the eyes of currency traders. Higher expected US rates can increase demand for dollar-denominated assets, creating an additional headwind for AUD/USD.
At the same time, the RBA’s own projections show that Australian inflation remains elevated. Its August statement said inflation is expected to decline gradually as domestic demand slows and higher costs from the Middle East conflict fade.
0.7000 Becomes Key Technical Level
From a technical analysis perspective, AUD/USD remains below its 20-period exponential moving average near 0.7108. The pair has also fallen below the 50.0% Fibonacci retracement at 0.7052 and the 38.2% level at 0.7096.
The 14-period Relative Strength Index is around 34.9. The reading points to sustained selling pressure but remains above the 30 threshold generally associated with oversold conditions.
Key levels now include:
- Immediate support: 0.7008
- Psychological support: 0.7000
- Next support: 0.6945
- Major downside base: 0.6865
- Initial resistance: 0.7052
- 20-period EMA: 0.7108
- Higher resistance: 0.7151
A sustained break below 0.7000 would increase the risk of a move toward 0.6945 and potentially the 0.6865 Fibonacci base. On the upside, reclaiming 0.7052 would ease immediate selling pressure, while a move above 0.7108 would provide a stronger technical recovery signal.
Conclusion
AUD/USD is attempting to stabilize near 0.7020 after a sharp two-day decline, but the pair remains vulnerable while trading below its 20-period EMA. The 0.7000 area is now the key psychological test, with 0.6945 and 0.6865 providing deeper downside references. On the upside, 0.7052 and 0.7108 are the first technical barriers. The RBA’s September 29 decision will be central to the near-term outlook, while shifting Fed rate expectations and US Dollar strength remain important external drivers.
Sources & Methodology
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