Dollar slides, AUD soars, CAD awaits guidance – Markets brace for central bank trio

1. Federal Reserve meeting – Dovish pricing dominates ahead of Powell

Markets are heading into today’s FOMC meeting with a firmly dovish bias, as traders bet that Jerome Powell will emphasise data dependency and patience rather than further tightening. Futures pricing shows a near-unanimous expectation that the Fed will hold rates steady, but the tone of Powell’s statement will be the key market mover.

The US Dollar Index (DXY) has broken decisively below its key support around 97.00, extending its multi-week downtrend after slipping out of a corrective channel. The move reflects growing conviction that the Fed’s next significant shift will be toward eventual easing later in the year.

However, if Powell delivers a hawkish twist — warning that inflation remains sticky or that further tightening remains possible — the dollar could bottom out temporarily, attracting dip-buying flows as short positioning becomes crowded.

Technical View:

• Trend: Bearish breakdown.
• Support: 96.00/95.00.
• Resistance: 98.00/99.50.
• RSI: Oversold at ~28, hinting at short-term bounce potential if Powell surprises hawkishly.

2. Australia CPI – Hotter inflation sparks RBA hawkish bets, AUD/USD surges

Australia’s latest CPI print came in hotter than expected at 3.8% y/y, reigniting speculation that the RBA may resume tightening after months on hold. The data underscores persistent inflationary pressures in services and rents, forcing markets to reprice the odds of another rate hike in early 2026.

The Australian Dollar (AUDUSD) responded sharply, breaking through the key 0.69 resistance and touching 0.70 for the first time in over a year. The pair has rallied aggressively as traders anticipate a more hawkish tone from the RBA next week.

While momentum remains strong, the RSI above 80 signals overbought conditions, suggesting a potential pullback or consolidation phase. Still, as long as AUDUSD holds above 0.69, the broader trend remains constructive, and any dip may be seen as a buying opportunity in anticipation of tighter RBA policy.

Technical View:

• Trend: Strong bullish breakout.
• Support: 0.6900/0.6830.
• Resistance: 0.7050/0.7150.
• RSI: Overbought (81), implying near-term correction risk before trend continuation.

3. Bank of Canada decision – Neutral tone could support CAD at key pivot

The Bank of Canada is expected to hold rates steady at 2.25% later today, but the focus is squarely on forward guidance and tone. Inflation has eased, and the economy remains resilient despite U.S. tariff headwinds, giving policymakers room to stay patient.

Markets will parse Governor Macklem’s comments for any shift in bias — a neutral or cautiously hawkish tone could support the Canadian dollar, while dovish rhetoric could re-weaken it.

The USDCAD pair has been in a steep decline, now testing a major support zone near 1.36. A sustained break below could open the door toward 1.32 in the coming months, particularly if the BoC strikes a confident tone about inflation progress and growth stability. Conversely, dovish guidance could see a short-term rebound toward 1.38–1.39.

Technical View:

Trend: Bearish channel breakdown.

Support: 1.3600/1.3450.

Resistance: 1.3800/1.4000.

RSI: Deeply oversold (25), suggesting a potential pause before further downside if BoC guidance reinforces CAD strength.

In short:
Markets are leaning dovish on the Fed, hawkish on the RBA, and neutral-to-slightly hawkish on the BoC — a combination that leaves the USD broadly weaker against both AUD and CAD heading into midweek trading. Volatility around central bank communication is likely to define direction in the coming sessions.