AUD/USD Extends Decline as Fed Tightening Expectations Surge

Traders' Opinions

Summary:

AUD/USD has fallen toward 0.7135 as markets price roughly a 90% chance of a Fed hike this week. Dollar strength is pressuring the Aussie, while attention will later shift to RBA Governor Bullock.

SELL AUDUSD

EXP

TRADING

0.71300

Entry Price

0.70000

0.72000

0.71383 -0.00317 -0.44%

0.0

Pips

Flat

0.70000

Exit Price

0.71300

Entry Price

0.72000

The Australian Dollar came under renewed selling pressure on Monday, with AUD/USD falling around 0.45% to the 0.7135 region as investors moved away from risk-sensitive currencies. The decline comes as markets increasingly position for another Federal Reserve rate increase, strengthening demand for the US Dollar and creating a more difficult backdrop for the Aussie.

Expectations surrounding Wednesday's Federal Open Market Committee meeting have shifted decisively toward tighter policy. Strategists at Brown Brothers Harriman expect the Fed to deliver a 25-basis-point increase, lifting the target range to 3.75%-4.00%. Such a move would end a run of five consecutive unchanged decisions and represent the Fed's first rate hike since July 2023.

BBH argues that persistently elevated US inflation, combined with a relatively stable labor market, provides policymakers with sufficient justification to tighten again. Markets have largely moved in the same direction, with Fed funds futures assigning roughly a 90% probability of a hike this week.

With the rate increase heavily priced, attention is likely to shift toward what comes next. The voting breakdown, updated economic projections and Fed Chair Kevin Warsh's press conference could prove more influential than the decision itself. Any indication that policymakers remain prepared to tighten further would reinforce the recent repricing in US rates and potentially extend pressure on AUD/USD.

The shift in expectations is already benefiting the Greenback. The US Dollar Index has climbed around 0.4% toward 99.50, with the prospect of higher US borrowing costs encouraging investors to reduce exposure to risk-sensitive currencies such as the Australian Dollar.

Domestic developments will also move into focus later in the week. Reserve Bank of Australia Governor Michele Bullock is scheduled to appear before the House of Representatives Standing Committee on Economics in Canberra on Friday. Her comments will be closely examined for indications of how the RBA views inflation and whether additional tightening remains necessary.

For now, however, AUD/USD is being driven primarily by the sharp repricing of the Fed outlook. Unless Bullock delivers a sufficiently hawkish message or the Fed pushes back against expectations for further tightening, the Aussie could remain vulnerable as the Dollar continues to benefit from widening rate expectations.

Technical Analysis

AUD/USD is showing increasingly clear signs that its broader bullish structure is entering a deeper correction. On the 4-hour chart, the pair had been advancing within a well-defined ascending channel, but the rejection from the 0.7230–0.7240 resistance zone triggered a sharp reversal and disrupted the sequence of higher highs and higher lows.

Price is now trading around 0.7130, directly around an important 0.7125–0.7135 support area. More importantly, the latest decline has pushed price through the lower boundary of the ascending channel. That breakdown represents a meaningful deterioration in the bullish structure and suggests that the correction may have further room to develop.

A short-term rebound from current levels remains possible. AUD/USD could recover toward 0.7145–0.7155, effectively retesting the broken channel and former support from below. However, unless buyers can reclaim the trendline and establish themselves back above the 0.7180–0.7190 resistance zone, such a recovery would likely represent a corrective bounce rather than a genuine bullish reversal.

Failure to recover above the broken structure would leave sellers firmly in control. A decisive break beneath 0.7120 would strengthen the bearish setup and expose the 0.7100 psychological level initially. Beyond there, the chart leaves relatively little meaningful structural support before the 0.7000 area, which stands out as the primary downside objective of the current correction.

The bearish scenario would begin to weaken if AUD/USD recaptures 0.7190. A sustained recovery above that area could bring the upper 0.7230–0.7240 supply zone back into focus. For now, however, the combination of rejection from major resistance, loss of the ascending trendline and pressure on 0.7130 favors selling into short-term recoveries.

TRADE RECOMMENDATION

SELL AUD/USD

ENTRY PRICE: 0.7130

STOP LOSS: 0.7200

TAKE PROFIT: 0.7000

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AUD/USD Extends Decline as Fed Tightening Expectations Surge

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