AUD/USD Price Forecast: Short-term trading range breakout in play amid US-China optimism

The AUD/USD pair scales higher for the second straight day on Monday and advances to its highest level since early December amid a combination of supporting factors. The incumbent Prime Minister Anthony Albanese claims victory in the Australian general election held on Saturday, marking the end of domestic political uncertainty. This comes on top of the optimism over the potential de-escalation of trade tensions between the US and China – the world's two largest economies – and provides a goodish lift to the China-proxy Australian Dollar (AUD).

In fact, China said last week that it was evaluating the possibility of trade talks with the US. Adding to this, US President Donald Trump signaled that the US was preparing to sign trade agreements with several countries and that his administration was in some dialogue with China. Apart from this, the emergence of fresh US Dollar (USD) selling, despite the better-than-expected release of the US jobs data on Friday, contributes to the bid tone surrounding the AUD/USD pair and supports prospects for a further appreciating move.

The US Nonfarm Payrolls (NFP) report showed that the economy added 177K new jobs in April against 130K expected. Other details of the report revealed that the Unemployment Rate held steady at 4.2%, forcing investors to push back expectations for the resumption of the Federal Reserve's (Fed) rate-cutting cycle to July from June The initial market reaction, however, turned out to be short-lived amid the heightened economic uncertainty on the back of Trump's rapidly shifting stance on trade policies, which keeps the USD bulls on the defensive.

Meanwhile, strong Australian consumer inflation figures released last week reaffirm bets for a 25 basis points (bps) interest rate cut at the next RBA policy meeting on May 20. The data, however, tempered expectations of an outsized rate cut and favors the AUD bulls. Traders, however, might refrain from placing aggressive bets and opt to wait for the outcome of a two-day FOMC policy meeting starting on Tuesday, which might offer cues about the future rate-cut path. This, in turn, will drive the USD and provide a fresh impetus to the AUD/USD pair.

In the meantime, Monday's release of the US ISM Services PMI will be looked upon to grab short-term opportunities later during the early North American session. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the upside. Hence, any corrective pullback could be seen as a buying opportunity and is more likely to remain cushioned.

AUD/USD daily chart

Technical Outlook

From a technical perspective, a sustained strength beyond the 0.6430-0.6440 supply zone, marking the top end of a short-term trading range, is seen as a fresh trigger for bullish traders. The subsequent move above the 200-day Simple Moving Average (SMA), along with positive oscillators on the daily chart, validates the positive outlook for the AUD/USD pair. Hence, some follow-through move beyond the 0.6500 psychological mark, towards testing the next relevant hurdle near the 0.6545 region, looks like a distinct possibility. The momentum could extend further towards the 0.6600 round figure en route to the 0.6650 area and the November 2024 swing high, around the 0.6700 neighborhood.

On the flip side, the 0.6440-0.6430 region, or the trading range hurdle breakpoint, might now protect the immediate downside ahead of the 0.6400 mark. Any further corrective slide might attract dip-buyers and remain limited near the 0.6350-0.6345 horizontal zone. This is closely followed by the 100-day SMA, currently around the 0.6280 region, which if broken decisively might prompt some technical selling. The AUD/USD pair might then accelerate the fall towards intermediate support near the 0.6220 region en route to sub-0.6200 levels and the 0.6130 area. Failure to defend the said support levels will negate any near-term positive outlook and shift the bias in favor of bearish traders.