The Australian dollar made an impressive turnaround last week, climbing back strongly after coming dangerously close to the 0.59 level. This quick reversal left behind a clear V-shaped bottom on the AUD/USD chart a technical formation often seen at major market turning points.

Volatility Swings Both Ways

Last week highlighted just how unpredictable the forex markets can be. From Wednesday’s low just 13 pips above the psychologically critical 59-cent level AUD/USD surged higher, completely wiping out the losses from the previous week. By Friday’s close, the Aussie was up 0.8% for April, despite the month experiencing a wide 8% swing from high to low, making it the most volatile period since November 2022.

Looking at Q1, the pair had a modest open-to-close move of just 60 pips, accounting for only 18.8% of its total 320-pip range. In comparison, the first two weeks of Q2 have already shown a 476-pip move suggesting the market was shaken by recent geopolitical events. However, the worst may be over now that much of the uncertainty surrounding former President Trump’s tariff strategy appears priced in.

Seasonal Trends Around Easter

With the Easter holiday shortening the trading week, reduced volume tends to result in smaller price movements. Historically, the Australian dollar has shown modest gains in the three days leading up to Good Friday and even on the day itself. The Monday and Tuesday after Easter also tend to be positive, though the Wednesday following the holiday has typically seen a dip. Still, this year’s performance might deviate due to the dominating influence of global trade tensions.

Labor Market and Sentiment Signals

Australia’s latest jobs report revealed an unexpected drop of 52,000 positions, marking the fastest decline since December 2023. However, this was largely driven by older workers leaving the workforce, which suggests it may not reflect genuine labor market weakness. A rebound could be on the cards in the next employment release, scheduled for Thursday.

Meanwhile, consumer confidence dropped by 6% in March, according to the Westpac-Melbourne Institute survey. All key components of the index including views on household finances and economic prospects fell, with the ongoing tariff conflict taking much of the blame.

Monetary Policy Outlook

The Reserve Bank of Australia (RBA) minutes are due soon, but they’re unlikely to provide fresh insight. The central bank’s next significant policy move may hinge on the inflation figures expected at the end of April. A soft inflation reading could prompt a rate cut as early as May, though that would likely reduce the odds of a follow-up cut in July.

In the US, all eyes are on Federal Reserve Chair Jerome Powell, who will speak at the Economic Club of Chicago on Wednesday. His comments may offer hints about future rate moves, though the Fed has signaled it will wait to see how tariff impacts unfold before making further decisions. Market odds, as priced in by Bloomberg, now indicate an 87% probability of a 25-basis-point cut in June.

Futures Market Positioning

According to the latest CFTC Commitments of Traders (COT) report, large speculators and asset managers trimmed their bearish bets on AUD/USD significantly last week. A combined 32,300 short contracts were closed marking the fastest pace of short-covering in nearly a year. Simultaneously, asset managers increased their long positions by 8,000 contracts at the fastest rate in 12 weeks. These moves appear to have been well-timed, aligning with AUD/USD’s strong bounce from recent lows.

Key Correlations

Market volatility has disrupted many traditional relationships, including the one between AUD/USD and bond yield spreads. However, its correlation with the Chinese yuan remains strong. As fears of a yuan devaluation subsided and USD/CNH fell from 7.43 to 7.28, the Australian dollar was able to claw back early April losses.

Technical Picture: Rebound Meets Resistance

AUD/USD’s recent rebound has formed a classic V-bottom, often seen as a bullish signal. Reduced short positions in futures markets and signs that China is not devaluing its currency further support the pair holding above the 60-cent mark for now.

However, the rally seems to have hit a ceiling near 63c, with resistance aligning closely with the 100-day exponential moving average (EMA). The 64c level has proven to be a tough nut to crack earlier this year, so upside potential might be limited in the short term. Traders might consider looking for opportunities on lower timeframes perhaps fading rallies into resistance or buying dips near support.

Volatility expectations have also cooled, with the 1-week implied move down to 140 pips in either direction far lower than last week’s 400-pip range.