- The AUD/USD outlook remains strongly constructive as the dovish Fed further weakened the dollar, giving the pair another push to fresh highs.
- Elevated inflation in Australia supports the case of a hawkish RBA with two hikes in 2026.
- Technically, the pair remains supported as long as it stays above 0.7000.
AUD/USD is trading near 0.7080 in Asia, continuing a three-day rise amid diverging central bank expectations and changing risk sentiment. The pair remains supported due to broad dollar weakness.
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The DXY remains stuck around 96.00, near its lowest level since February 2022, with a clear downside bias. Even though the Fed kept rates unchanged and Chair Powell reiterated that inflation is still above target, the Greenback is still losing value due to ongoing political and institutional risks around the Fed and concerns about de-dollarization.
On the domestic front, the Aussie gains as inflation rises more than expected while trade conditions improve. In December, the headline CPI rose to 3.8% YoY, up from 3.4% the month before and 3.6% expected. The trimmed mean inflation also rose, from 0.2% MoM to 3.3% YoY.
Markets now price in more than a 70% chance that the RBA will raise rates by 25-bps from 3.6%, with the cash rate fully priced at 3.85% by May and close to 4.10% by September. Higher export prices, which rose 3.2% from the previous quarter in Q4 after three weak quarters, and higher import prices support the idea that the external sector is strong.
However, upside in AUD/USD could face headwinds from intermittent USD support linked to policy signaling from Washington and the Fed. US Treasury Secretary Scott Bessent’s renewed commitment to a “strong dollar” policy and the Fed’s acknowledgment of still?elevated inflation and solid growth can slow the pace of dollar selling. Powell’s emphasis on data dependence and a meeting-by-meeting approach leaves room for repricing if US data surprises on the upside, starting with jobless claims.
AUD/USD Technical Outlook: Well Bid Above 20-MA
The AUD/USD 4-hour chart shows no respite for sellers, with prices soaring to near 0.7100, while solid support lies at the 20-period MA near 0.6970. Although the RSI remains extremely overbought, the Aussie remains supported amid a weakening dollar.
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The pair could test the 0.7000 area before 0.6970, and then 0.6950 in the event of a corrective downside. On the upside, the pair needs a stronger push to find acceptance above the 0.7100 level and look to test the 0.7150 and 0.7200 levels.
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