- The outlook for the AUD/USD pair remains strongly constructive, as a dovish Fed weakened the dollar further, giving the pair another push to new highs.
- High inflation in Australia supports the Reserve Bank of Australia’s hawkish case with two increases in 2026.
- Technically, the pair remains supported as long as it remains above the 0.7000 level.
AUD/USD is trading near 0.7080 in Asia, extending a three-day rally amid mixed central bank forecasts and shifting risk sentiment. The pair remains supported by broad-based dollar weakness.
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The DXY is still stuck around 96.00, near its lowest level since February 2022, with a clear bearish bias. Although the Fed kept interest rates unchanged and Chair Powell reiterated that inflation remains above target, the dollar is still losing value due to ongoing political and institutional risks around the Fed and concerns about a declining dollar.
Domestically, the Australian dollar rose as inflation rose more than expected while trade conditions improved. In December, the headline CPI rose to 3.8% year-on-year, up from 3.4% the previous month and 3.6% expected. Average inflation also rose from 0.2% on a monthly basis to 3.3% on an annual basis.
Markets are now pricing in more than a 70% chance that the RBA will raise interest rates by 25 basis points from 3.6%, with the full interest rate set at 3.85% by May and approaching 4.10% by September. Higher export prices, which rose 3.2% from the previous quarter in the fourth quarter after three weak quarters, and higher import prices support the idea that the external sector is strong.
However, the rally in AUD/USD could face headwinds from intermittent support for the US dollar linked to policy signals from Washington and the Fed. US Treasury Secretary Scott Besent’s renewed commitment to a “strong dollar” policy and the Federal Reserve’s admission that inflation rates remain high and strong growth could slow the pace of dollar selling. Powell’s focus on data-driven, meeting-by-meeting approach leaves room for repricing if US data surprises to the upside, starting with jobless claims.
AUD/USD Technical Outlook: Good offer above the 20-MA
The 4-hour AUD/USD chart shows no relief for sellers, with prices rising near 0.7100, while strong support lies at the 20-period moving average near 0.6970. Although the RSI remains extremely overbought, the Australian dollar remains supported amid dollar weakness.
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The pair could test the 0.7000 area before 0.6970 and then 0.6950 in case of a corrective downtrend. On the upside, the pair needs a stronger push to find acceptance above the 0.7100 level and is looking to test the 0.7150 and 0.7200 levels.
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