On Monday, the AUD/USD currency pair jumped 4% in an instant. It built on the very solid positive momentum from last week, riding a generally weaker US dollar. The duo broke through the key psychological level of 0.6500, its largest point since November of 2024. A potent cocktail of factors continues to fan this bullish fire. US fiscal worries, dovish Fed expectations, and the impact of inflation coming down hard on the US economy feature prominently.
On Friday, the AUD/USD closed above the important 200-day Simple Moving Average (SMA), which has sparked hopeful bullish traders. This breakout beyond a relatively shallow short-term trading range is technically significant and greatly improves the odds for a sustainable continuation higher. Going into the week, analysts overwhelmingly expect the pair to set their sights on the 0.6600 level. They expect the 0.6640 resistance area to be possibly retested.
Underlying this extraordinarily bullish outlook is the recently strengthened backdrop of a weaker USD, which is key to this bullish outlook. Recent fiscal policy discussions have ignited fears that. One group of experts already projected a federal primary deficit increase of $4 trillion over the next 10 years. Recent news has raised fears of the US budget deficit deteriorating faster than forecasted. All of this would greatly increase the chances that these developments would put downward pressure on the dollar.
After inflation surged to a 40-year-high in the United States just months ago, it has suddenly begun to decelerate. CPI — Consumer Price Index — and PPI — Producer Price Index — data released earlier this month were softer than forecasted. It does seem that inflationary pressures are beginning to subside. Consequently, traders are now expecting at least two 25 bp rate cuts by year-end, which would further undermine the USD.
Although the AUD/USD pair has bullish potential, it is not without risks. Ongoing trade tensions between the US and China, alongside broader geopolitical uncertainties, may limit further upside for the currency pair. China recently accused the US of abusing export control measures and violating preliminary trade agreements, which could create volatility in currency markets.
From a purely technical standpoint, the AUD/USD’s least resistance path seems to be higher. Traders should look for the continuation buying to show beyond the daily swing high near the 0.6540-0.6545 area. This zone coincides perfectly with the 61.8% Fibonacci retracement level. It captures the sharpest drop we experienced from September 2024 through April 2025.
If the AUD/USD sees any sharp pullback, it will probably look to find support around 0.6455-0.6450. Support can be found just above the 200-day SMA. Should the value slip under the 0.6500 psychological level, traders could see this as an opportunity to buy. The pair is expected to remain buoyed in this range.
Market participants are busy trying to game out what all of this means. So, first and foremost, keep an eye on price action macroeconomic landscape shaping AUD/USD dynamics. The interplay between US monetary policy and international trade relations will continue to shape the trajectory of this currency pair.