Weekly FX Update
12 October 2026
The AUD is recovering — but inflation has other plans
The Australian dollar begins the week in a slightly stronger position, recovering from last week’s lows and approaching the psychologically important US$0.70 level.
The latest official Reserve Bank of Australia reference rate for Friday, 9 October was AUD/USD 0.6979, compared with 0.6933 the previous Friday. The AUD trade-weighted index also improved from 64.4 to 64.8, suggesting the recovery was not confined to the US dollar cross. Reserve Bank of Australia
However, the currency remains caught between two competing forces.
On one side, Australia’s relatively high interest rates provide support. The RBA raised its cash rate to 4.60% on 29 September, and markets remain concerned that inflation could require further tightening.
On the other side, the US dollar continues to benefit from elevated Treasury yields and expectations that the Federal Reserve may raise rates again before the end of the year.
Oil is complicating matters. Brent crude finished Friday at US$104.72 per barrel, up approximately 2.4% over the week. Supply disruptions in the Gulf of Mexico, combined with continuing Middle East tensions, are keeping energy prices elevated. Reuters
This week brings three potentially decisive events: US CPI on Wednesday night, Australian employment on Thursday morning, and US PPI and retail sales on Thursday night.
What Is Driving the Australian Dollar?
- AUD/USD is approaching the important 0.70 level
The Australian dollar recovered from 0.6933 on 2 October to 0.6979 on 9 October, an improvement of approximately 0.66%.
The recovery has been gradual rather than dramatic, suggesting that buyers are returning but remain cautious.
The immediate technical question is whether AUD/USD can move sustainably above 0.70.
A successful break would improve the short-term outlook, while another rejection could leave the currency vulnerable to renewed USD strength.
- Australian interest rates remain supportive
The RBA’s September decision increased the cash rate to 4.60%, the fourth increase during 2026.
The Board highlighted persistent inflation, higher global energy prices, domestic capacity constraints and rising costs associated with technology-related demand.
However, the Australian economy is showing signs of slowing.
Consumer sentiment deteriorated sharply in October, with the Westpac–Melbourne Institute index falling 4.7% to 80.4.
This presents the RBA with a difficult balance: inflation remains too high, but higher interest rates are increasingly affecting households and economic activity. Reserve Bank of Australia
This week’s key development: Tuesday’s RBA minutes will provide more detail about the Board’s assessment of inflation and economic conditions.
- US inflation is the biggest global event
The United States releases September CPI on Wednesday, 14 October.
Economists surveyed by TD Economics expect headline inflation of approximately 3.6% year-on-year, compared with 3.4% previously. Core inflation is expected to be around 2.5%.
The Federal Reserve has already increased its target rate to 3.75%–4.00%, and its September meeting minutes indicate that many policymakers believe further tightening may be appropriate.
A stronger-than-expected CPI result could lift US Treasury yields and strengthen the USD.
Conversely, softer inflation could reduce expectations for another Fed hike and support AUD/USD. TD Economics
- Australian employment could change the RBA outlook
The Australian Bureau of Statistics releases September Labour Force data on Thursday, 15 October at 11:30am AEDT.
The previous report showed unemployment rising to 4.6% in August.
The labour market is particularly important because the RBA must balance persistent inflation against the risk of a sharper economic slowdown.
Another increase in unemployment would weaken the argument for additional rate hikes.
A stronger employment result, particularly if accompanied by higher participation and hours worked, could reinforce expectations that Australian interest rates will remain elevated. Australian Bureau of Statistics
- Oil remains a major source of uncertainty
Brent crude ended last week above US$104 per barrel.
Oil markets have been affected by two important developments.
First, continuing disruption to Middle East energy supplies and shipping routes has kept a substantial geopolitical risk premium in prices.
Second, Hurricane Isaias has disrupted offshore production in the US Gulf of Mexico, with more than 70% of offshore crude production reportedly shut ahead of the storm.
The result is an oil market that remains sensitive to unexpected supply developments. Reuters
For the AUD, higher oil prices create competing effects.
Commodity-related sentiment may provide some support, but sustained energy inflation can increase global interest rates, weaken economic growth and strengthen demand for the USD.
- China remains an important influence
China’s manufacturing activity improved in September, with the official manufacturing PMI rising to 50.1, returning to expansion.
However, domestic consumption and property-sector weakness continue to constrain the broader recovery.
This week brings Chinese inflation and trade data, both relevant for the AUD.
Stronger Chinese imports and improving domestic demand would generally support commodity-linked currencies.
Weaker demand could limit the AUD’s recovery, even if Australian interest rates remain relatively attractive.
Market Snapshot
Official RBA reference rates — Friday, 9 October 2026. All currency pairs are expressed as foreign currency units per AUD.
| Currency pair | Latest reference | Current tone |
| Currency pair | Latest reference | Current tone |
| AUD/USD | 0.6979 | Broke below 0.70; lowest in months |
| AUD/EUR | 0.6215 | Slightly firmer |
| AUD/GBP | 0.5270 | Softer |
| AUD/NZD | 1.2416 | Little changed |
| AUD/CNY | 4.7118 | Weaker |
Key Economic Events This Week (Sydney Time)
| Date & time | Event | Why it matters |
| Tue 13 Oct, 11:30am | RBA September meeting minutes | High — AUD |
| Tue 13 Oct, US session | US existing home sales | Moderate — USD |
| Wed 14 Oct, time TBC | China CPI, PPI and trade data | High — AUD/CNY |
| Wed 14 Oct, 11:30pm | US September CPI | Very high — USD |
| Thu 15 Oct, 11:30am | Australia September employment | Very high — AUD |
| Thu 15 Oct, UK morning | UK August GDP | High — GBP |
| Thu 15 Oct, 11:30pm | US September PPI | High — USD |
| Thu 15 Oct, 11:30pm | US September retail sales | High — USD |
| Fri 16 Oct, European session | Eurozone final September CPI | Moderate — EUR |
| Fri 16 Oct, 11:30pm | US import/export prices | Moderate — USD |
AUD Outlook
Bullish AUD Scenario
The most favourable combination for the Australian dollar would be:
Softer U.S. CPI + stronger Australian employment + declining Treasury yields + stable oil prices.
Under these conditions, AUD/USD could move above 0.7000, opening the possibility of a recovery toward 0.7050–0.7100.
Bearish AUD Scenario
The principal downside combination would be:
Stronger U.S. CPI + weaker Australian employment + rising oil prices + persistently high U.S. Treasury yields.
This could push AUD/USD below 0.6950, with 0.6900 becoming the next important support area.
Practical Implications for FX Clients
For businesses buying USD, the current AUD/USD level around 0.698 remains less attractive than the 0.72+ levels available during September.
Given this week’s event risk, staged coverage is preferable to relying entirely on a recovery above 0.7000. Businesses with near-term obligations may benefit from covering part of their exposure while retaining flexibility for more favourable levels.
For businesses receiving USD, the combination of high Treasury yields and geopolitical uncertainty provides a reason to consider retaining some USD exposure.
The appropriate hedge ratio will depend on payment dates, existing cover and each business’s tolerance for exchange-rate movements.
Quick Take
This week brings two critical questions.
Will U.S. inflation justify further Fed tightening?
Will Australian employment give the RBA room to maintain its restrictive policy stance?
The answers will influence relative interest-rate expectations and potentially determine the next meaningful direction for AUD/USD
Base-case assessment: AUD/USD may remain broadly range-bound around 0.6900–0.7050 until inflation or employment data provide a stronger directional catalyst.
A sustained move above 0.7000 would improve the short-term outlook, while a break below 0.6900 would increase downside risks.