AUD/USD Hints at Pullback as US Dollar Bulls Regain Footing

AUD/USD is showing early signs of fatigue after briefly pushing to fresh 15-month highs, with renewed US dollar strength and stretched technicals warning of a near-term pullback. While Australian inflation has cooled modestly, CPI remains above the Reserve Bank of Australia’s target band, keeping policy restrictive and limiting the scope for aggressive downside in the Aussie.

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AUD/USD Outlook: Pullback Risks Rise as USD Finds Support

Australian Inflation Cools, but CPI Still Above RBA Target

Monthly inflation figures for November released on Wednesday showed that core CPI remains sticky, although price pressures have eased modestly. Trimmed mean CPI slowed to 3.2% y/y, while headline CPI fell to 3.4%, leaving both measures above the RBA’s 2–3% target band. Housing was again a key driver, contributing 1.1 percentage points to inflation and accounting for 21.4% of the total CPI basket.

While this eases pressure on the Reserve Bank of Australia to hike rates in Q1, it does nothing to justify rate cuts. Policymakers will want confirmation from the Q4 CPI figures due on 28 January before determining whether the February meeting is live—a possibility Governor Bullock effectively flagged in December. Until then, inflation remains uncomfortably high and the policy bias stays restrictive.

Chart prepared by Matt Simpson - data source: Australian Bureau of Statistics (ABS)

US Dollar Finds Its Footing

The US dollar index rose in the first week of the year to hint at an interim swing low around 97.50, although I doubt bulls will manage to drive prices back above 100. Prices have broken above last week’s bullish inside week and the prior week’s bearish engulfing candle, pointing to further near-term upside.

Regular readers will recall that I suspect a wave-C correction may have ended on the weekly chart, which keeps my broader bias tilted towards fading extended USD rallies. That, in turn, suggests AUD/USD bulls may look to buy dips rather than chase strength.

Chart analysis by Matt Simpson - Source: TradingView / ICE

AUD/USD Technical Analysis: Australian Dollar vs US Dollar

The daily chart shows the Australian dollar briefly hitting a 15-month high on Wednesday, before a stronger US dollar drove a full intraday reversal into the close. This has left a shooting star candlestick on the AUD/USD daily chart, reinforced by bearish RSI divergence, warning of at least a near-term pullback.

I’m not looking for anything aggressive at this stage, but a break below the September high at 0.6707, or the 67c handle, could see AUD/USD retrace towards its 20-day SMA near 0.6675.

A deeper pullback may require domestic data to undershoot expectations, particularly given current futures and options positioning. However, a decisive break below 0.6660 would open a run towards the 50-day SMA and prior swing highs and lows around 0.6592.

Chart analysis by Matt Simpson - Source: TradingView

AUD/USD Positioning: Australian Dollar Futures – COT Report

While futures traders remain net short AUD/USD, long exposure continues to trend higher among large speculators and asset managers. Short interest has only edged modestly higher among large specs and has largely flattened among asset managers.

With no immediate signs of sentiment reaching an extreme, futures traders could flip net long AUD/USD in the coming weeks or months, assuming no fresh bearish catalyst emerges for the Australian dollar.

Chart analysis by Matt Simpson - Source: TradingView / ICE

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-- Written by Matt Simpson

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