AUD/USD forecast: Technical Tuesday - February 18, 2025

With US investors returning after a long weekend, we could see FX markets turn a bit lively again after starting the week quietly. In this shortened version of Technical Tuesday, we will focus on the AUD/USD pair following the Reserve Bank of Australia’s first rate cut since November 2020 overnight and the US dollar’s recent bearish price action. We maintain a modestly bullish AUD/USD forecast, despite the pair weakening a touch today.

US dollar rebounds after recent drop – for now

Last week saw the US dollar failed to react positively to hotter-than-expected inflation data, while Friday's disappointing retail sales figures caused limited volatility. The focus remains on a potential resolution in the Ukraine war, which is driving FX volatility and keeping the US dollar largely at bay in what would have otherwise been a bullish environment for the greenback, with hot inflation and yields rebounding.

Although the US dollar was higher across the board at the time of writing, the gains come on the back of a weak performance in the last several weeks, causing the US dollar index to end its three-month winning streak in February. The key question now is whether the recent pullback was merely a correction or if there’s more downside to come. However, a potential Russia-Ukraine peace agreement could still open the door for a broader risk-on, dollar-off move. 

Interestingly, last week’s hotter-than-expected inflation data failed to lift the greenback, suggesting that markets may have already priced in upside risks linked to Trump’s protectionist policies. With no major US data releases scheduled this week, attention turns to tomorrow’s FOMC minutes, though it remains uncertain whether they will prove market-moving.

RBA’s hawkish cut supports bullish AUD/USD forecast

Overnight, the Reserve Bank of Australia cut interest rates by 25 basis points as expected, but statement and the press conference were both quite hawkish. The RBA provided no clear easing bias, citing risks on both sides of the inflation outlook. While it acknowledged that the disinflationary process is progressing, a strong labour market has kept policymakers cautious. The central bank’s governor Bullock highlighted risks to inflation, saying we cannot declare victory on inflation yet. That helped to limit the downside for the AUD/USD, as other majors declined across the board.

Technical AUD/USD forecast: key levels to watch

Source: TradingView.com

From a technical standpoint, the Australian dollar has been showing bullish price action in recent weeks, particularly after forming a hammer candle around the 0.6130 area a couple of weeks ago. Since then, it has consistently printed bullish price action, keeping buyers in control.

Previous resistance at 0.6330 has now turned into support, and the area was holding firm at the time of writing. For as long as this level remains supported, the path of least resistance remains to the upside, potentially paving the way for a run toward the 0.6500 handle in the next few days.

On the downside, the 21-day exponential moving average at around 0.6280 serves as the next support in the event of a breakdown below the abovementioned 0.6330 level.

Overall, given the bullish structure, the bias remains to the upside for now, meaning that the AUD/USD forecast is leaning more towards the bullish than bearish side of things.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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