AUD/USD Price Forecast: Immediate target now aligns at 0.6300

The US Dollar (USD) alternated gains with losses on Wednesday, with the US Dollar Index (DXY) slipping to the sub-109.00 region soon after the release of US CPI and returning to the 109.30 zone as the session drew to a close. Meanwhile, the Australian Dollar extended its week rebound further north of 0.6200 the figure, opening the door to a potential test of the 0.6300 hurdle in the short-term horizon.

What’s driving the Aussie’s recovery?

Despite the Aussie Dollar has been under pressure against a dominant US Dollar, it has managed to regain some balance in the last few days on the back of the resurgence of the offered bias in the Greenback. It is worth recalling that the strong rally in the US Dollar kicked in around October hand-in-hand with the dubbed "Trump trade".

Domestically, the Reserve Bank of Australia (RBA) is weighing the possibility of a February rate cut, citing subdued economic momentum and easing inflation risks. Market odds of a cut now sit at 62%.

Adding to the challenges, Australia faces weaker-than-expected Q3 GDP growth (0.3% QoQ, 0.8% YoY) and declining consumer confidence, which slipped to 92.1 in January. Tepid commodity prices, coupled with concerns over China’s economic slowdown—a vital driver of Australian exports—have only compounded the pressure.

The publication of the December’s Australian labour market report on Thursday could prove to be key in determining the next move by the RBA early in February.

Market signals: RBA keeps everyone guessing

At its December meeting, the RBA held rates steady at 4.35% but opened the door to potential cuts, signaling that inflation risks are easing. RBA Governor Michele Bullock emphasized that future policy moves will hinge on economic data.

Challenges and glimmers of hope for AUD/USD

AUD/USD faces multiple hurdles, including persistent US Dollar strength, some loss of momentum in domestic fundamentals, and China’s sluggish recovery. However, if the Federal Reserve (Fed) signals a continuation of rate cuts, it could provide the pair with some much-needed relief.

Technical outlook

The AUD/USD remains fragile, with critical support at 0.6130. A break lower could push the pair toward the psychological 0.6000 mark. Resistance lies at 0.6301, with stronger barriers around 0.6401 and 0.6549. Momentum indicators suggest mixed signals, with RSI hinting at short-term optimism around 41, but the ADX above 35 is confirming a strong bearish trend.

AUD/USD daily chart

What to watch this week

Key Australian data, including labour market figures and inflation expectations, will shape the outlook. For now, the Australian Dollar remains under significant pressure despite a three-day bounce so far, with its recovery tied to both domestic developments and global shifts.