The AUD/USD pair broke its six-week losing streak, supported by a weaker US dollar and a firmer Chinese yuan. However, the recovery appears modest, driven by improved risk sentiment rather than robust fundamentals. With a shortened US trading week and light data releases, volatility may remain subdued.

Key Drivers for AUD/USD This Week

The US market holiday on Monday may reduce trading activity early in the week. Later, attention will shift to jobless claims, S&P Global PMIs, and Michigan consumer sentiment data. These reports are unlikely to significantly impact AUD/USD compared to headline data like Non-Farm Payrolls or CPI.

Chinese Economic Developments

China’s Loan Prime Rate (LPR) announcement could influence AUD/USD if the People’s Bank of China (PBOC) surprises markets with a cut. While no change is expected, a reduction would boost risk sentiment and support the Australian dollar.

Reserve Bank of New Zealand (RBNZ) Speculation

Talk of a potential 50-basis-point rate cut by the RBNZ in February may weigh on sentiment. However, higher-than-expected inflation in New Zealand could provide a lift to both NZD and AUD, given their close economic ties.

Market Sentiment and Correlation Trends

• Yuan Correlation: AUD/USD remains positively correlated with the yuan, though the link has weakened recently.
• USD Correlation: The pair retains an inverse relationship with the US dollar, though this, too, has softened.
• Broader Markets: Across 11 tracked markets, no single factor strongly influences AUD/USD, reflecting diverse and weaker drivers.

Futures Positioning

• Commitment of Traders (COT): Large speculators slightly increased their net-short positions last week, while asset managers trimmed shorts.
• Sentiment: Net short positioning isn’t extreme, leaving room for potential upside if the pair holds support.

Technical Analysis: Resistance, Support, and Scenarios

The pair has recovered above a key 2022 weekly-close support level, signaling reduced downside pressure.

Key Levels to Watch:

• Resistance: Immediate targets include retracement levels at 0.6850 and 0.6900.
• Support: A failure to hold current levels could see the pair retest 0.6700 and below.

Scenarios:

• Bullish Case: A sustained move higher may test 0.6850 and 0.6900 if global risk appetite strengthens.
• Bearish Case: A drop below support could trigger declines toward 0.6700 or lower.

Outlook

The AUD/USD’s recent rebound offers hope for bulls but depends heavily on external drivers. Key factors include US dollar movements, Chinese economic signals, and overall market risk sentiment. With no major Australian data scheduled, the pair’s trajectory will largely hinge on global developments and technical dynamics.

Important Dates

• Monday: US Public Holiday, China Loan Prime Rate
• Thursday-Friday: US Jobless Claims, S&P Global PMIs, Michigan Consumer Sentiment Report

For more insights on trading AUD/USD in 2025, check out our in-depth trading guide.