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The Australian dollar looks vulnerable to a deeper setback shows a new anylsis from Lloyds Bank, although other analysts think the currency will refind its winning ways.
It's been a solid 2026 for the Australian dollar, although that momentum has certainly appeared to fade of late.
In fact, on a one-month horizon, the Australian dollar is the second-worst performing G10 currency, with the Norwegian Krone occupying the bottom of the pile.
Above: AUD performance over the course of the past month.
So is this the end of the bull run, or a mere blip?
For Nick Kennedy, FX strategist at Lloyds Bank, the fragility is worth taking note of, particularly when considering the headline AUD/USD exchange rate.
"AUD/USD is starting to look more fragile after the failure of 0.7094/7100 support," says Kennedy in a recent FX market research update.
He says, "the bears need to push a little harder to really derail the uptrend, cracking 0.6977 really, which would expose the 200dma/March low at 0.6832/33."
Aussie dollar bulls also have a task ahead of them:
"We’d really want to see a rally back through 0.7094 to think this is just a short-term dip. That is not far away, but it does not look that straightforward to execute either. We’d revert to neutral for the moment."
AUD/USD techs courtesy of Lloyds Bank.
In May, the Australian dollar fell across the board after inflation numbers for April undershot expectations and reduced the odds of an interest rate rise at the Reserve Bank of Australia (RBA).
With foreign exchange markets paying particular attention to the data's impact on central bank rate expectations, the AUD naturally adjusted lower.
"More recently, however, the AUD has fallen back in the rankings with softer domestic economic data suggesting that the central bank’s rate hiking cycle may already be close to a peak," says a recent research note from Rabobank.
AUD Weakness a Temporary Setback
Nevertheless, some analysts think the Australian dollar has merely entered a soft patch and should resume its winning ways, particularly on the crosses.
"While GBP/AUD has remained in a tight range in recent weeks, we would look to sell rallies in anticipation of a move lower on a 3-to-6-month view," says Rabobank in a note that covers AUD's prospects on the non-USD crosses.
Rabobank's view is that Aussie dollar underperformance is a "theme of May", characterised by a reduction in rate hike speculation for some central banks, including the RBA.
"Uncertainties about growth and inflation suggest scope for further movements in the weeks and months ahead, but from a relative basis the Australian economy and the AUD still appear well positioned," says the note.
Above: Despite recent underperformance, AUD has enjoyed a strong start to the year.