The Australian dollar weakened on Wednesday after domestic inflation came in below expectations, reducing pressure on the Reserve Bank of Australia to raise rates again in August. AUD/USD fell about 0.3% to $0.6953, while Australian three-year government bond yields also moved lower.
In this article, experts at Fonndure examine whether AUD/USD can stabilize above 0.6950 or whether fading rate-hike expectations could send the pair toward lower support.
Inflation Data Changes the Rate Outlook
Australia’s Consumer Price Index rose 0.6% during the second quarter, down from 1.4% in the previous three months. Annual inflation eased to 4.0%.
Core inflation increased 0.8% quarter over quarter and 3.6% annually, with both readings below forecasts.
The softer report reduced the urgency for another immediate increase in Australian interest rates.
Markets sharply lowered the probability of an August hike, while expectations for another increase before year-end also weakened.
Lower rate expectations can pressure the Australian dollar by reducing the return available from Australian assets.
The Short-Term Trend Has Weakened
The first chart uses Heikin-Ashi candles, which smooth some of the noise found in regular candlestick charts.
The shift from stronger bullish candles to smaller or bearish formations suggests upward momentum is fading.
AUD/USD needs to hold above 0.6950 to prevent the pullback from developing into a broader decline.
Larger bullish candles would indicate buyers are regaining confidence. Continued weakness near the lower volatility band would support the downside case.
Image 1: AUD/USD Heikin-Ashi Chart With ATR Volatility Bands
ATR Bands Show Expanding Volatility
The Average True Range bands measure how far price is moving around its recent average.
AUD/USD has moved toward the lower ATR band following the inflation report.
Trading near the lower volatility band can signal strong downside momentum, but it may also attract buyers if support holds.
A decisive close beneath the band would suggest the decline is accelerating.
Support Begins Around 0.6950
The first support area sits near 0.6950.
Holding above this region would leave open the possibility of a rebound toward 0.7000.
A break below 0.6950 could expose 0.6900, followed by 0.6850.
A sustained move beneath 0.6900 would weaken the recent recovery structure and place sellers in firmer control.
Resistance Remains Near 0.7000
The first major barrier is positioned around 0.7000.
A recovery above this level could expose 0.7050, followed by 0.7100.
A sustained close above 0.7050 would provide stronger evidence that the reaction to the inflation data was temporary.
Without that confirmation, rebounds may continue to attract selling.
Rate of Change Turns Negative
The second chart uses the Rate of Change indicator to compare the current exchange rate with its level several periods earlier.
The drop below zero confirms that sellers currently hold the short-term momentum advantage.
A deeper negative reading would support further losses toward 0.6900. A recovery above zero would offer an early sign that the decline is losing strength.
Image 2: AUD/USD Four-Hour Chart With Rate of Change
The RBA Can Afford to Be Patient
The Reserve Bank of Australia has already raised its key rate three times during 2026 to 4.35%.
Although inflation remains above target, the latest figures suggest earlier increases are beginning to work.
A more patient RBA outlook removes one of the strongest recent sources of support for the Australian dollar.
Rate expectations could change again if third-quarter inflation accelerates.
Domestic Price Pressure Remains
The headline figures were softer, but services inflation, new dwelling prices, and rents remained elevated.
Persistent services and housing inflation may limit how far rate expectations can fall.
A resilient labor market also gives policymakers room to maintain restrictive policy if price pressure returns.
Oil Prices Remain a Risk
June inflation benefited from a sharp drop in fuel costs. Since then, oil prices have risen as conflict in the Gulf intensified.
Australia is a major commodity exporter, so higher raw-material prices can sometimes support its currency.
However, expensive fuel may also lift inflation and weaken consumer spending.
Renewed energy inflation could revive RBA tightening expectations later in the year.
Trading Implications
AUD/USD keeps a cautious short-term outlook while trading below 0.7000.
A confirmed recovery above 0.7000 could expose 0.7050 and 0.7100.
A break below 0.6950 would weaken immediate momentum, while a sustained move beneath 0.6900 could shift attention toward 0.6850.
Stronger commodity prices and renewed RBA hike expectations would support the upside case. Softer Australian data and a stronger US dollar would increase downside risk.
Conclusion
AUD/USD has fallen toward 0.6950 after softer inflation reduced expectations of an August RBA rate increase.
Resistance is positioned near 0.7000, 0.7050, and 0.7100. Support can be found around 0.6950, 0.6900, and 0.6850.
The near-term technical picture favors sellers, but persistent inflation and higher energy prices could prevent a deeper decline.