- AUD/USD retested the key barrier at 0.6500 early on Wednesday.
- The US Dollar added to Tuesday’s losses on Fed rate cut bets.
- Australia’s labour market report takes centre stage on Thursday.
AUD/USD came under renewed selling pressure on Wednesday, even as the US Dollar (USD) extended its downward bias, causing the Australian Dollar (AUD) to surrender part of the previous day’s gains.
The pair gave back some of Tuesday’s strong rebound, despite once again testing the key 0.6500 resistance and hovering around its 200-day Simple Moving Average (SMA) near 0.6460.
For now, traders seem to be shifting their attention to the uncertainty surrounding the recently announced US–China trade agreement—especially questions about how it will be extended and whether it lays the groundwork for a more lasting solution. Any real progress on that front could work in the Aussie’s favour, given Australia’s deep trade ties with China.
China is always there
On the policy side, the People’s Bank of China (PBoC) has recently rolled out targeted easing measures in response to weaker domestic data. Last week, it trimmed the 7-day reverse repo rate and the reserve requirement ratio (RRR), expanded lending quotas, and introduced sector-specific rate cuts.
Meanwhile, the latest inflation numbers out of China showed prices rising just 0.1% month-on-month in April, while the annual figure slipped 0.1%—another sign of lingering disinflationary pressure amid some marginal progress on the US-China trade front.
Diverging central bank signals
Central bank dynamics are also playing into AUD/USD’s movements. Both the Federal Reserve (Fed) and the Reserve Bank of Australia (RBA) kept policy rates steady, but their messaging is diverging.
Fed Chair Jerome Powell maintained a cautious but slightly hawkish tone, signalling patience as the Fed assesses incoming data. In contrast, RBA Governor Michele Bullock pointed to stubborn inflation and a tight labour market as reasons to keep the cash rate at 4.10%.
Markets are still pricing in a potential 25bp cut from the RBA at its 20 May meeting, though expectations for deeper easing have been pared back. Forecasts now point to a total of 125bp in rate cuts over the next year—down from earlier projections.
Over in the US, soft April inflation data have prompted some market participants to start pricing in a possible Fed rate cut in September.
Positioning appears rosier for the Aussie
CFTC data for the week ending May 6 show that net short positions on the Aussie have dropped to an eight-week low of roughly 48.3K contracts. The modest dip in open interest hints at tentative stabilisation in sentiment.
What are techs saying?
A decisive move above the 200-day SMA would brighten the near-term outlook for AUD/USD. The next resistance levels to watch are 0.6514 (the 2025 high from May 7) and 0.6687 (November 2024 high).
On the downside, the 55-day SMA at 0.6319 and the 100-day SMA at 0.6293 provide transitory support. A break below those could expose the 2025 bottom at 0.5913, or even the pandemic-era bottom near 0.5506.
Momentum indicators are leaning slightly bullish, with the Relative Strength Index (RSI) pushing past 55 and the Average Directional Index (ADX) holding steady near 22, suggesting a modest trend is in play.
AUD/USD daily chart
Outlook: Positive, but with caution
Overall, sentiment around the Aussie seems to be firming, even as mixed technicals and macro uncertainty linger. With inflation still sticky and China’s recovery path uncertain, volatility is likely to stick around—but for now, the bias in AUD/USD appears to be tilting cautiously higher.
