- AUD/USD outlook is turning bearish despite rising inflation as yields fall sharply, suggesting the RBA will raise just one more in the near term.
- Trump’s nomination of Kevin Warsh to be the next Fed Chairman has lifted the US dollar, with markets viewing the decision as less pessimistic.
- The COT position indicates reduced Australian dollar long positions, increasing the potential for significant pullbacks.
The AUD/USD pair has had a good start to the year, but is clearly losing ground, trading well below its recent highs around 0.7100. Strong domestic data has helped the Australian dollar, but external and situational risks suggest it may not rise much in the near future.
–Are you interested in learning more about Bitcoin price forecast? Check out our detailed guide-
Australian labor market data surprised to the upside, while inflation remained steady. CPI contraction averaged 3.3% year-on-year, still above the RBA’s target range of 2-3% and well above the November forecast of 2.7% by Q4. Markets are currently pricing in a 70-75% chance of a 25 basis point rate hike at the RBA meeting this week, which would take the cash rate to 3.85%.
All major banks now expect monetary policy to tighten, although views differ on whether this represents a one-time move or the beginning of a short extension of the cycle.
However, the market reaction to the latest inflation data was clear. Australian three-year bond yields fell sharply after the CPI release, suggesting investors are in position for a hotter reading. This would increase the risk that the increase, if implemented, would be treated as “once and done”. A sudden consolidation, even with tight guidance, is likely to put pressure on the AUD/USD pair in the short term.
On the other hand, the US dollar rebounded after Donald Trump nominated Kevin Warsh as the next Chairman of the Federal Reserve, a move that markets interpreted as less pessimistic than expected. This lowers expectations for a short-term US interest rate cut, in line with strong US PPI data and the Fed’s dovish rhetoric. Asymmetric risks persist ahead of ISM and NFP data. Any positive surprise could boost the dollar.
Meanwhile, major speculators flipped net longs on the Australian dollar for the first time since late 2024, according to CFTC data, with total longs approaching multi-year highs. This congestion increases the possibility of reversal.
Technical outlook for the AUD/USD pair: oscillating between the 20 and 100 MA
The 4-hours chart of AUD/USD is showing moderate support near the demand block at 0.6920, which corresponds to the 50-period moving average. However, the price is well below the 20-period moving average near 0.7000, while the RSI has fallen below 50.0, indicating a bearish bias.
–Are you interested in learning more about Scalping Forex Brokers? Check out our detailed guide-
If the decline continues, the pair needs to break below the 0.6920 area to find next support at the 100-period moving average near 0.6810. Conversely, the uptrend may encounter temporary resistance around 0.6950 before 0.7000.
Are you looking to trade Forex now? Invest in eToro!
68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
