Range-Bound AUD/USD Awaits Key Catalysts

AUD/USD has been stuck in a narrow range, recording its least volatile week in 10, as traders remain uncertain on direction. Futures data shows a lack of commitment, with both long and short positions trimmed. However, this week’s FOMC meeting and Australia’s employment report could provide the much-needed momentum for a breakout.

For now, range-trading strategies remain favored, with traders looking to sell into highs and buy at lows until a clearer trend emerges.

FOMC Meeting: Will the Fed Disappoint Dovish Expectations?

The Federal Reserve is widely expected to keep rates steady at 4.25%-4.50%, with almost no chance of a move. However, market odds of a 25bp cut in June have jumped to 70% from just 20% a few weeks ago, reflecting concerns over weak economic data and rising inflationary pressures.

Key focus points for traders:

• The Fed’s updated economic projections
• The dot plot showing future rate expectations
• Jerome Powell’s commentary on the U.S. economic outlook

Despite softer U.S. data, the Fed may not deliver a dovish surprise. Powell recently stated that there’s no need for immediate Fed action, and with Trump’s tariff policies still uncertain, the central bank may prefer a cautious approach rather than committing to aggressive rate cuts.

If the Fed signals only one or two cuts for 2025, it could strengthen the U.S. dollar, putting downside pressure on AUD/USD.

Australian Jobs Data: A Key Test for the Aussie Dollar

Australia’s employment data on Thursday is the biggest domestic event for AUD traders. The participation rate is at record highs, and while unemployment has edged up to 4.1%, it has remained within a stable 3.9%-4.2% range over the past year.

What traders should watch for:

• If unemployment rises with weaker job growth, AUD could weaken.
• If participation remains strong and job growth is positive, AUD may find support.

As of now, the Reserve Bank of Australia (RBA) is unlikely to hike rates again until at least July, keeping AUD/USD closely tied to external factors like Fed policy and global risk sentiment.

AUD/USD Market Positioning & Technical Outlook

• Futures data (COT report): Traders remain hesitant, with both long and short positions reduced, signaling a lack of conviction in either direction.
• Correlation analysis: AUD/USD’s traditional correlations (such as with commodities and risk assets) are weak, with the Chinese yuan (CNH/USD) being the only strong influencer.
• Technical signals:
  • AUD/USD has held above the 50-day SMA and formed a bullish engulfing candle last Friday.
  • The higher low on the 4-hour chart suggests short-term support, favoring buying dips.
  • Key resistance sits near 0.64, which aligns with the March 6 high and the monthly pivot level.

For now, unless a major catalyst emerges, AUD/USD is likely to stay range-bound, making short-term trading opportunities more attractive than long-term directional plays.