[foob]

Does it always mean that in Australia, or does it depend on how you say it? I think both usages are actually pretty common in the US, but you tell the difference based on the inflection. If you emphasize "too" and go down in pitch on "bad" then it means you're actually not that good at something, if you emphasize "bad" and go up in pitch then it means you're actually good at it. We also have alternative constructions, like "not too shabby," which carry the positive connotation regardless of how they're pronounced.

[firecall]

That’s my practical understanding of the term as well.

Me: English, living in Australia for >20 years

[RoyalHenOil]

I'm an American who has lived in Australia for a little over a decade, and I have not noticed a difference between Australians and Americans in this regard. If you aren't too familiar with one accent or the other, it may be a little difficult to pick up on whether someone is emphasizing or deemphasizing "too" or "bad", but the essential meaning of the emphasis is the same.

In general, I find Americans and Australians deemphasize positive things at about the same rate and in the same circumstances, though the exact phrasing used can differ (although "not too bad" is a case where the phrase is shared in both dialects).

However, Australians are more likely to also deemphasize negative things (e.g., "This weather is average" to mean it's bad) whereas Americans are more likely to use sarcasm for negative things (e.g., "This weather is great" to mean it's bad).