The AUD/USD pair has shown signs of weakening bullish momentum as traders await the Federal Reserve’s interest rate decision. Despite a recent rally driven by U.S. economic data and geopolitical developments, technical indicators suggest a potential bearish reversal.
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AUD/USD Rises on Weak U.S. Trade Data and China Deal Hopes
The AUD/USD exchange rate extended its rally earlier this week, climbing from April’s low of 0.5907 to a high of 0.6500 — the highest level since December 2024. This upward move came as traders reacted to news that the U.S. trade deficit widened sharply in March, hitting over $140 billion, up from $123 billion in February. The larger-than-expected deficit was driven by a rush in imports ahead of the Trump administration’s new tariffs, contributing to a 0.4% GDP contraction in Q1.
These developments put pressure on the U.S. dollar and fueled speculation about future monetary policy. Market participants are now closely watching the Federal Reserve’s interest rate decision. While economists expect the Fed to leave rates unchanged at 4.50%, policymakers have adopted a cautious tone, indicating they are not in a hurry to cut rates as they assess the impact of Trump’s trade measures.
Additionally, sentiment toward the AUD improved after President Trump hinted at renewed willingness to negotiate a deal with China. Such a deal would be beneficial for Australia, whose economy is heavily reliant on exports to China.
AUD/USD Technical Analysis: Bearish Breakdown on the Horizon?
From a technical standpoint, the AUD/USD pair remains within an ascending channel, signaling continued bullish sentiment. The pair is currently trading near 0.6480, holding above the 9-day Exponential Moving Average (EMA) and the 50-period EMA, indicating short-term support for the uptrend.
However, the rally may be losing steam. The pair has formed a rising wedge pattern, typically a bearish signal, as it indicates a narrowing of buying interest. Additionally, the Money Flow Index (MFI) has moved above 50, supporting bullish momentum, but other indicators are turning cautious.
The Average Directional Index (ADX) has dropped below 15, suggesting that the strength of the trend is fading. Meanwhile, the Awesome Oscillator continues to trend lower, reinforcing concerns that the recent bullish move may be running out of steam.
Support lies near the lower boundary of the ascending channel around 0.6450, followed by the 9-day EMA at 0.6435. A decisive break below these levels could open the door for further declines toward the 50-day EMA at 0.6338, and potentially down to 0.6300, which is a key psychological support level.
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Conclusion: AUD/USD Faces Critical Test as Fed Decision Looms
While the AUD/USD pair has enjoyed a solid bullish run in recent weeks, both technical and fundamental factors suggest that the upward momentum may be faltering. The formation of a rising wedge pattern and weakening trend indicators hint at a potential bearish reversal, especially if the pair fails to hold key support levels.
All eyes are now on the Federal Reserve’s upcoming decision, which could act as a catalyst for the next major move. A dovish Fed tone could prolong the AUD’s rally, while a firm stance on rates might reignite demand for the U.S. dollar and pressure the AUD/USD pair lower.
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