IMO the correct decision. The foot in touch scenario only applies to a ball caught the full. A ball touching the ground and picked up or touched by a player who is themselves in touch, is put into touch by that player.
I think you'll find you are in error. The ball was moving and therefore the Australian did not take it in. Line out to Australia!
I refer you to the relevant Law Ruling! (How can you "pick up a ball that you catch on the full?" The ruling specifically referes to the 22 but was later confirmed a sapplying to touch as well.
RULING 14: 2003
Law Ruling by Designated Members of Laws Committee
2 September 2003
The UAR has requested a ruling with regard the Line-out, in Law 19.
If a player with one or both feet inside the 22 metre line, picks up the ball, which was lying on the field of play outside the 22 metre line, and kicks it directly into touch. Where does the line-out form; 1) Where the ball went into touch, or 2) where the ball was kicked?
The Designated Members have ruled the following in answer to the questions raised:
Ruling
If a player with one or both feet inside the 22 metre line, picks up the ball which was stationary outside the 22 metre line, and kicks it directly into touch, then the player has taken the ball back inside the 22-metre line, and therefore the line-out is formed in line with where the ball was kicked.
If a player with one or both feet inside the 22 metre line, picks up the ball which was in motion outside the 22 metre line, and kicks it directly into touch, then the player has not taken the ball back inside the 22-metre line, and therefore the line-out is formed in line with where the ball crossed the touch-line.
If a player with one or both feet inside the 22 metre line, picks up the ball which was stationary outside the 22 metre line, and kicks it directly into touch, then the player has taken the ball back inside the 22-metre line, and therefore the line-out is formed in line with where the ball was kicked.
If a player with one or both feet inside the 22 metre line, picks up the ball which was in motion outside the 22 metre line, and kicks it directly into touch, then the player has not taken the ball back inside the 22-metre line, and therefore the line-out is formed in line with where the ball crossed the touch-line.