AUD/USD Price Forecast: Bulls pause for a breather near 0.7000 as Fed decision looms

The AUD/USD pair retreats slightly after touching a nearly three-year high following the release of strong Australian consumer inflation figures earlier this Wednesday, snapping a seven-day winning streak amid a modest US Dollar (USD) recovery. Any meaningful USD appreciation, however, seems elusive amid heightened economic and policy risk linked to US President Donald Trump's decisions. Furthermore, the diverging interest rate paths between the US Federal Reserve (Fed) and the Reserve Bank of Australia (RBA) should help limit losses for the currency pair.

In fact, Trump withdrew his tariff threat following the recent escalation of friction and claimed that a framework deal had been reached for a future deal on Greenland with NATO. The optimism, however, turned out to be short-lived after Trump said on Saturday that he would impose a 100% tariff on Canada if it follows through on a trade deal with China. Furthermore, the US Supreme Court is yet to decide on Trump's tariffs, which adds a layer of uncertainty. This, along with concerns about the Fed's independence, might hold back the USD bulls from placing fresh bets.

Meanwhile, Trump said on Tuesday that he will soon announce his pick to serve as the head of the Fed, and predicted interest rates would decline after the new chair takes over. This comes amid evolving efforts to fire Fed Governor Lisa Cook and market expectations that the US central bank would lower borrowing costs two more times in 2026. In contrast, traders ramped up bets that the RBA will hike interest rates next month after the Australian Bureau of Statistics (ABS) reported earlier today that the headline Consumer Price Index (CPI) rose 3.8% in the year to December.

Additional details revealed that the RBA's preferred indicator for the underlying trend in inflation – the trimmed mean – climbed to 3.4% in the fourth quarter from 3.0% in the September quarter. Readings above the central bank's 2–3% target back the case to maintain a restrictive monetary policy stance. Apart from this, the upbeat market mood, which tends to undermine the safe-haven Greenback and benefit the risk-sensitive Aussie, supports the AUD/USD pair. Traders also seem reluctant and opt to wait for the outcome of a two-day FOMC policy meeting, due later today.

The Fed is widely expected to leave interest rates unchanged. Hence, the focus will be on the post-meeting press conference, where comments from Fed Chair Jerome Powell will be scrutinized for more cues about the future policy outlook. This, in turn, will play a key role in influencing the near-term USD price dynamics and determining the next leg of a directional move for the AUD/USD pair. Nevertheless, the aforementioned fundamental backdrop seems tilted firmly in favor of the AUD bulls and suggests that the path of least resistance for the currency pair is to the upside.

AUD/USD daily chart

Technical Analysis:

The recent breakout through a multi-week-old trading range hurdle, around mid-0.6700s, was seen as a key trigger for bullish traders. Adding to this, Tuesday's close above the 0.7000 psychological mark for the first time since February 2023 validates the near-term positive outlook for the AUD/USD pair. The 100-day Simple Moving Average (SMA) rises above the 200-day one, and price holds above both, reinforcing a bullish backdrop.

The Moving Average Convergence Divergence (MACD) shows the MACD line above the Signal line with a widening positive histogram near the zero mark, suggesting strengthening upside momentum. The Relative Strength Index (RSI) stands at 84 (overbought) and could cap immediate gains pending a consolidation.

The 100-day SMA sits at 0.6612, offering nearby dynamic support. The 200-day SMA at 0.6553 provides deeper support should corrective pressure emerge. However, the upward slopes of both SMAs underscore trend strength. A sustained positive MACD profile would back an extension of the advance once stretched conditions ease, while an RSI cooldown toward more neutral territory could reset momentum for another push higher. As long as price holds above the rising averages, pullbacks would be expected to remain limited.

(The technical analysis of this story was written with the help of an AI tool.)