AUD/USD Price Forecast: The 0.6300 hurdle comes first

The US Dollar (USD) experienced a rollercoaster ride on Monday, with the US Dollar Index (DXY) dipping below the 108.00 support to flirt with yearly lows once again in the broad context of dominant risk-on sentiment.

Meanwhile, the Australian Dollar (AUD) reversed two daily pullbacks in a row, reclaiming the 0.6200 hurdle and well above to hit fresh multi-day peaks.

What’s Driving the Australian Dollar’s Rebound?

While the Australian Dollar has struggled against a resilient US Dollar, it has recently clawed back some ground, aided by Monday’s pronounced retreat in the Greenback. The USD’s extended rally, which began in October amid the so-called "Trump trade," had placed significant pressure on the Aussie and the rest of the risk-linked universe.

Domestically, the Reserve Bank of Australia (RBA) is weighing a potential rate cut in February to counter slower economic growth and softening inflation. Market expectations for a cut currently sit at around 60%.

Adding to the AUD's challenges are faltering domestic economic momentum, weaker confidence indicators, and concerns about China’s slowing economy—a critical driver of Australian exports. Subdued commodity prices have further dampened the currency’s outlook.

On the brighter side, December’s Australian jobs report offered some positive news last week. Employment surged by 56.3K jobs, well above expectations, although the Unemployment Rate edged up slightly to 4.0% (from 3.9%). Meanwhile, the Melbourne Institute’s Consumer Inflation Expectations eased to 4.0% in January, down from 4.2%, signalling a potential cooling in inflationary pressures.

RBA’s Cautious Stance

At its December meeting, the RBA held rates steady at 4.35% but indicated that future cuts remain on the table as inflation eases. RBA Governor Michele Bullock emphasized that upcoming policy decisions will be closely tied to economic data.

Challenges and Opportunities for AUD/USD

The AUD/USD pair faces notable headwinds from the US Dollar’s strength, Australia’s mixed economic fundamentals, and concerns over China’s sluggish recovery. However, the Aussie could find support if the Federal Reserve signals further rate cuts, which would likely weaken the USD.

Technical Outlook

AUD/USD remains under pressure, with key support at 0.6130. A break below this level could open the door for a drop toward the psychologically significant 0.6000 mark. On the upside, resistance levels are seen at 0.6301, followed by 0.6401 and 0.6549. Momentum signals are mixed—while the RSI approached the 50 yardstick, the ADX lost some impetus and reached 30, indicating that the current trend appears to be running out of steam.

AUD/USD daily chart

What to Watch This Week

A light weekly calendar in Oz this week will only include the Westpac Leading Index (January 22).