• The AUD/USD forecast edges higher as the US dollar remains soft ahead of the Fed meeting.
• Higher Australian yields and potentially elevated inflation could push the RBA to hike at the Feb meeting.
• Fed uncertainty and global risk sentiment favor the Aussie over the USD in the near term.

AUD/USD is holding under a 16-month high around 0.6920. The balance of risks currently favors further AUD strength over USD. Meanwhile, the dollar is soft, with the DXY trading near recent lows. Concerns over Fed independence, uncertainty about the next Fed chair, and the risk of a partial government shutdown are weighing down market confidence.

The Fed is expected to keep rates on hold after three cuts in late 2025. This limits the scope for a clearly hawkish surprise at this meeting. Data releases such as ADP employment and consumer confidence may tweak expectations at the margin. However, political noise and leadership uncertainty are doing more damage to USD sentiment than the macro data for now.

The Australian side, on the other hand, looks much more hawkish. It has been more than 3 years since Australian government bond yields were this high. This shows that investors trust Australia’s creditworthiness and believe the RBA may still need to raise rates. On the other hand, the data from the US has been strong, with strong PMI and labor numbers. Inflation has dropped to 3.4% YoY, but it remains above the RBA’s target range of 2% to 3%.

Wednesday’s CPI is the key near-term catalyst for AUD/USD. Traders will focus on the trimmed mean and services inflation. Any upside surprise would raise the odds of a February RBA hike and likely push AUD/USD higher. Even a slightly softer print may not be enough to unwind hike pricing, given the recent strong employment data.

Global risk sentiment also supports the Aussie. Easing geopolitical and tariff concerns, along with a rally in base metals, has encouraged demand for pro-cyclical FX. AUD has outperformed across the board, not just against USD. Unless the Fed surprises markets with a clearly hawkish message or US political risks recede, dips in AUD/USD are likely to be bought, with risks skewed to the upside into CPI.
 

AUD/USD Technical Forecast: Pullback Before an Upside
 

(Click on image to enlarge)

AUD/USD 4-hour chart
 

The AUD/USD consolidates gains above 0.6900, with the RSI indicating extreme overbought conditions. A pullback to fill the bullish gap and test the 20-period MA around 0.6870 is probable ahead of the orderblock zone near 0.6850.

The trend remains broadly bullish, as revealed by the stacking of key MAs. A bounce from the 20-period MA could lead to a test of the 16-month top around 0.6940, ahead of the 0.7000 psychological mark.

More By This Author: