The AUD/USD pair remains under pressure as traders focus on a week packed with central bank meetings. Among the five key meetings those of the Federal Reserve, Bank of Japan, Bank of England, Norges Bank, and Riksbank the Federal Open Market Committee (FOMC) is expected to have the most significant influence on the Australian dollar. A lack of a dovish surprise could see AUD/USD continue its downward trajectory, potentially breaching the 63-cent mark.

Key Factors Driving AUD/USD This Week

1. FOMC Meeting in Focus:
   The Federal Reserve is widely expected to cut rates by 25 basis points and hold steady in January. Fed fund futures imply a 96% probability of this week’s cut, but traders see only a 52% chance of another cut in March. The updated staff forecasts will provide insights into the Fed’s economic outlook, the first since the U.S. presidential election.
   • Economic Uncertainty: With core PCE inflation at 2.7% higher than the Fed’s 2.6% projection the central bank could revise its 2025 inflation forecast to 2.3% or 2.4%. However, the Fed may also highlight economic uncertainties, potentially limiting market reaction.
   • Interest Rate Projections: The Fed’s median funds rate for 2025 was revised down to 3.4% in June, but with the current rate at 5%, upward revisions are possible. Any dovish surprises could weaken the U.S. dollar, providing relief for AUD/USD, which appears oversold.
2. Bank of Japan’s Decision:
   Less than 12 hours after the Fed meeting, the Bank of Japan will announce its policy decision. Market sentiment has shifted toward expectations of a hold rather than a hike, making this event less critical for AUD/USD. However, any surprises could introduce volatility, potentially pulling AUD/USD into risk-off movements.
3. China’s Influence on the Aussie:
   The Chinese yuan remains a significant driver for AUD/USD due to Australia’s economic ties with China. While the U.S.-Australia yield differential has regained attention, the FOMC’s outcome will likely dominate market dynamics for the pair this week.

Technical Analysis: AUD/USD Under Pressure

Despite a bullish RSI divergence forming since late October, the Australian dollar continues to struggle under macroeconomic pressures. The pair has yet to dip into oversold territory, but persistent strength in the U.S. dollar and weakness in the yuan keep the Aussie vulnerable to further losses.

• Resistance Levels: The 10-day and 20-day SMAs are acting as dynamic resistance zones, making them ideal areas for bearish traders to reload unless the Fed delivers a dovish surprise.
• Volatility Bands: The one-week implied volatility band has widened to approximately 275 pips, with the lower band near 0.6269 close to the 2022 and 2023 lows.

If the U.S. dollar strengthens further, AUD/USD faces a high probability of breaking below the critical 63-cent level.

Outlook and Scenarios

• Bullish Scenario: A dovish surprise from the Fed could weaken the U.S. dollar and push AUD/USD higher, breaking through current resistance levels.
• Bearish Scenario: Without a dovish pivot from the Fed, or if the Chinese yuan weakens further, AUD/USD could extend its losses below 63 cents.

This week’s events are pivotal for the pair, with the FOMC decision likely to set the tone for AUD/USD’s direction in the near term.