AUD/USD Price Forecast: Near-term consolidation in the offing?

The US Dollar (USD) had a bumpy ride on Tuesday, with the Dollar Index (DXY) briefly revisiting the 108.50 region, just to deflate afterwards as the NA session drew to a close.

Meanwhile, the Australian Dollar (AUD) remained around Monday’s closing levels, managing to stage a marked comeback after bottoming out in the 0.6200 neighbourhood during early trade.

Why is the Australian Dollar bouncing back? 

The Aussie has struggled against the strong US Dollar recently but regained some footing with the beginning of the new trading week, thanks to a sharp pullback in the Greenback. It is worth recalling that the Dollar’s strength, which took off in October as part of the "Trump trade" narrative, had weighed heavily on risk-sensitive currencies like the AUD. 

Domestically, the Reserve Bank of Australia (RBA) is considering a possible interest rate cut in February to support slower economic growth and tame softening inflation. Markets are pricing in a 60% chance of a cut. 

However, the AUD faces hurdles, including weaker economic momentum at home, declining consumer and business confidence, and concerns over China’s sluggish economic recovery—China being a critical trade partner for Australia.

Falling commodity prices have also added pressure on the currency, although the recovery in copper prices and some range bound mood in iron ore prices appear to have underpinned the currency.

On a brighter note, last week’s Australian jobs report provided some positive news. The economy added a stronger-than-expected 56.3K jobs in December, although the unemployment rate nudged up slightly to 4.0% from 3.9%. Additionally, inflation expectations among Australian consumers eased in January, dropping from 4.2% to 4.0%, which could signal a cooling trend in price pressures. 

RBA takes a prudent approach 

At its December meeting, the RBA kept interest rates steady at 4.35% but left the door open for cuts if inflation continues to ease. Governor Michele Bullock highlighted that future decisions would be heavily dependent on economic data. 

Headwinds and opportunities for AUD/USD 

AUD/USD still faces challenges from a strong US Dollar, mixed economic signals out of Australia, and concerns about China’s recovery. However, the Aussie could gain some support if the Federal Reserve (Fed) hints at further rate cuts, which would likely weaken the USD. 

Technical overview 

AUD/USD remains under pressure, with a key support level at 0.6130. Falling below this could see the pair testing the psychologically important 0.6000 mark. On the upside, resistance is at 0.6301, followed by 0.6401 and 0.6549. Momentum indicators are giving mixed signals: while the RSI is navigating above the neutral 50 mark, the ADX has weakened below 30, suggesting the current trend may be losing strength. 

AUD/USD daily chart

What’s ahead this week 

The Australian economic calendar is light this week, with only the Westpac Leading Index on the docket on January 22.