AUD/USD Price Forecast: RBA-Fed divergence favors bulls; US NFP eyed for fresh impetus

The AUD/USD pair attracts fresh buyers following the previous day's modest decline and rallies to levels beyond the 0.7100 mark, or a fresh high since February 2023, on Wednesday. The Australian Dollar (AUD) continues with its relative outperformance on the back of the Reserve Bank of Australia's (RBA) hawkish outlook. The central bank judged the labour market to be tight and also revised up its forecast for the economy to expand by 2.1% by June this year after raising the Official Cash Rate (OCR) for the first time in more than two years this month.

Moreover, the RBA expects inflation to be much higher in 2026 and left the door open for further policy tightening. The current market pricing implies around a 70% chance that the RBA will hike rates again at the May meeting. The bets were reaffirmed by RBA Deputy Governor Andrew Hauser's hawkish comments earlier today, saying that inflation was too high and policymakers were committed to doing whatever was necessary to bring it to heel. In fact, the Australian Bureau of Statistics reported that consumer inflation climbed above the RBA’s 2% to 3% annual target in December.

This marks a big divergence in comparison to expectations that the US Federal Reserve (Fed) will continue to lower borrowing costs, which contributes to the Australian Dollar's (AUD) outperformance against a weaker US Dollar (USD). According to the CME Group's FedWatch Tool, the US central bank is expected to deliver at least two interest rate cuts in 2026. The expectations were lifted by Tuesday's rather unimpressive US Retail Sales, which prompted economists to downgrade growth estimates for the fourth quarter and back the case for further monetary policy easing.

Furthermore, US President Donald Trump said in an interview with Fox Business that the US should have the lowest interest rates in the world. This adds to concerns about the Fed's independence and drags the USD to a nearly two-week low, exerting additional pressure on the AUD/USD pair. Meanwhile, China's inflation figures released this Wednesday reinforced concerns that deflationary pressures continue to weigh on the world’s second-largest economy. The data raised hopes for more fiscal and monetary stimulus from China, further benefiting the China-proxy AUD.

The market focus now shifts to the release of the closely-watched US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report – amid signs of weakness in the labor market. The crucial macro data will be looked upon for cues about the Fed's policy outlook, which, in turn, will influence the USD price dynamics and provide a fresh impetus to the AUD/USD pair. The aforementioned fundamental backdrop, meanwhile, suggests that the reaction to the upbeat US jobs data is likely to remain limited amid the divergent RBA-Fed policy expectations.

AUD/USD 4-hour chart

Technical Analysis:

A descending channel from 0.6958 has been broken to the upside, tilting the near-term bias upward, with former channel resistance at 0.7013 turning into initial support. The Moving Average Convergence Divergence (MACD) line holds above the Signal line, and both sit in positive territory, while a contracting histogram suggests fading upside momentum. The RSI eases to 67 (bullish but below overbought), indicating momentum remains supportive even as the pace moderates.

Maintaining traction above the reclaimed channel boundary would keep the recovery path intact, while a pullback that loses the breakout area could expose support at 0.6875. Fresh MACD expansion and an RSI push back toward 70 would strengthen the case for continuation, whereas a deterioration in momentum would increase the risk of a deeper retracement within the prior bearish structure.

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