AUD/USD Forecast: Australian Dollar Slides Below 0.7100 as Weak PMI Meets Hawkish Fed

AUD/USD fell below 0.7100 on Wednesday as weaker Australian economic data collided with renewed US Dollar strength following hawkish comments from Federal Reserve officials. The Australian Dollar traded around 0.7086, down roughly 0.4% on the session and close to its lowest level in a week.

The pair has retreated sharply from levels above 0.7200 earlier this month as investors reassess the outlook for interest rates in both Australia and the United States. Wednesday’s move followed disappointing Australian PMI figures, while the Dollar remains supported by expectations that last week’s Federal Reserve rate hike will not be the last of 2026.

AUD/USD Today Falls Below 0.7100

The AUD/USD exchange rate came under fresh pressure during Wednesday’s European session, extending its recent decline below the psychologically important 0.7100 level. The US Dollar Index climbed to a fresh seven-week high above 100.6 before easing from its strongest levels. Expectations for additional Fed tightening have helped the greenback hold its gains even as oil prices retreat.

The Australian Dollar has faced pressure from both sides of the pair. Domestic economic data weakened on Wednesday, while the Fed’s increasingly hawkish policy outlook continues to favour the US Dollar.

Australian PMI Falls as Manufacturing Contracts

Australia’s preliminary September PMI data provided the latest reason for caution over the domestic economy. The S&P Global Composite PMI fell to 50.8 from 52.7 in August, leaving overall private-sector activity only marginally above the 50 level separating expansion from contraction.

The deterioration was particularly pronounced in manufacturing. Australia’s Manufacturing PMI dropped to 49.3 from 52.0, marking its first contraction since March. Services activity remained in expansion but slowed to 51.4 from 53.2. The figures point to a loss of momentum at the end of the third quarter.

That matters for the Australian Dollar because the Reserve Bank of Australia is widely expected to raise interest rates next week. Softer economic activity does not necessarily remove the case for a hike, particularly while inflation remains a concern, but it could make markets less confident about how much additional tightening follows.

RBA Interest Rate Outlook Turns to Australian Jobs Data

The RBA interest rate outlook now faces another important test with Australia’s employment report due Thursday. The labour-market figures will be the final employment report before the Reserve Bank’s September 29 policy decision and could influence expectations for what happens after the anticipated rate increase.

A resilient labour market would give the RBA greater room to focus on inflation and could strengthen expectations for additional tightening. A weaker report would complicate that picture after Wednesday’s PMI data already showed slowing business activity and weakness in manufacturing.

This leaves the Australian Dollar particularly sensitive to Thursday’s numbers. Rather than simply asking whether the RBA will hike next week, markets are increasingly focused on whether policymakers will need to continue tightening later in the year

US Dollar Strength Remains a Headwind for AUD/USD

The US Dollar remains a key headwind for AUD/USD as hawkish Fed officials reinforce expectations for further US rate hikes. At the same time, falling oil prices and hopes for progress in US-Iran talks have eased some inflation concerns, although not enough to significantly weaken the Dollar. For the Australian Dollar, lower energy prices offer some support to risk sentiment but could also reduce expectations for aggressive RBA tightening.

AUD/USD Forecast: Australian Jobs Report Takes Centre Stage

The near-term AUD/USD forecast remains cautious as the pair trades around 0.7086 and below its 20-day moving average near 0.7156. The immediate focus is the 0.7075-0.7100 region. A recovery above 0.7100 would ease some of the latest pressure, while a deeper decline could bring 0.7000 back into focus.

However, Thursday’s Australian employment figures are likely to matter more than short-term technical signals. A strong jobs report could revive expectations for a more sustained RBA tightening cycle and provide support for the Aussie. Weak employment data would instead reinforce Wednesday’s softer PMI signal at a time when the Fed continues to make the case for higher US interest rates.

That divergence leaves AUD/USD caught between an expected RBA hike and a US Dollar benefiting from the prospect of further Fed tightening.