AUD/USD: Stuck in Limbo as Traders Brace for BoJ and Trump Twists

• AUD/USD stuck in a narrow range after Monday’s bullish break
• Traders cautious ahead of US trade developments and BoJ decision.
• Momentum indicators show potential for bullish breakout
• A Trump headline or BoJ surprise could shift market direction Friday

Summary

AUD/USD traders remain quick to latch onto even the slightest hint of positive news on US trade policy, particularly regarding China. However, with tariffs potentially looming as soon as February 1, few are willing to make bold bullish bets on a favourable outcome.

That cautious mindset was evident again on Thursday, with AUD/USD drifting higher but staying within the narrow range it has occupied since breaking long-term downtrend resistance earlier this week. Until there’s more clarity on US trade policy, this indecisive price action could persist into next week.

Trump Tones Down Tariff Rhetoric

US President Donald Trump’s virtual address to the World Economic Forum in Davos, Switzerland, was a key focus for traders on Thursday, especially regarding trade policy, oil prices, and interest rates.

His noticeably less hawkish comments on the US-China trade relationship stood out, reigniting hopes of avoiding an escalating trade war between the world’s two largest economies.

“It’s just an unfair relationship, and we have to make it just fair,” Trump said of China in his address. “We don’t have to make it phenomenal. We have to make it a fair relationship. Right now, it’s not a fair relationship.”

He added: “We look forward to doing very well with China and getting along with China.”

The remarks marked a stark contrast to the hawkish tone of his Presidential campaign, where Trump floated the idea of blanket 60% tariffs on Chinese imports.

The shift in rhetoric boosted risk appetite across markets, lifting AUD/USD back toward the highs seen in early January.

AUD/USD: Neutral Bias with Bullish Risks

Following Monday’s bullish break of downtrend resistance, sparked by Trump’s decision not to introduce immediate tariffs upon returning to the Oval Office, the past three days have been marked by indecision. A string of daily doji candles highlights this hesitation, as traders remain wary of the next Trump headline delivering a costly face slap.

For now, AUD/USD is oscillating in a narrow range with bids emerging on dips toward .6247 and offers kicking in around .6300. Momentum indicators like RSI (14) and MACD are both trending higher, suggesting that any near-term breakout attempt may favour the bulls over those betting on downside moves.

Source: TradingView

A convincing break above the January 6 high of .6302 could pave the way for a quick run higher. While AUD/USD has a chequered track record with the 50-day moving average recently, that remains the first topside level of note in the event of a bullish breakout. However, the more significant test for bulls lies in the long-running uptrend dating back to the pandemic lows of early 2020, currently positioned just below .6400.

On the downside, a break below the former downtrend resistance would invalidate the current neutral bias, opening the door for fresh bearish setups targeting a retest of recent lows.

Later Friday, the Bank of Japan interest rate decision could introduce volatility across FX markets, including in AUD/USD. A hawkish hike, as markets expect, could weaken the US dollar, potentially boosting AUD/USD. Conversely, if the BoJ fails to meet hawkish expectations, the greenback may see a kneejerk rally, pressuring AUD/USD. Should this scenario unfold, it could offer a decent dip-buying opportunity given risk assets generally favour an environment of a weaker yen.

-- Written by David Scutt

Follow David on Twitter @scutty

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