AUD/USD Reaches Mid-May High Ahead of Key Fed Signals

Summary:

AUD/USD reached 0.7205, its highest level since mid-May, as persistent Australian inflation keeps expectations for another RBA hike alive. Attention now turns to Kevin Warsh at Jackson Hole, where any strong Fed policy signal could drive the next major move.

Buy AUDUSD

EXP

Trading

0.72000

ENTRY

0.72700

TGT

0.70950

0.71608 -0.00331 -0.46%

Point

Flat

0.70950

CLOSING

0.72000

ENTRY

0.72700

TGT

The Australian Dollar is extending its advance into Friday, with AUD/USD briefly touching 0.7205, its strongest level since mid-May, before easing slightly toward 0.7195. The pair has now risen for four consecutive sessions as support from the Australian monetary-policy outlook offsets caution ahead of Fed Chair Kevin Warsh’s Jackson Hole appearance.

The domestic backdrop has become increasingly supportive for the Aussie. The Reserve Bank of Australia’s latest Bulletin maintained a cautious stance on inflation, highlighting that price pressures have remained elevated relative to the central bank’s 2%-3% target for much of the post-pandemic period. That assessment has kept expectations of another RBA rate increase before year-end firmly in play.

Recent inflation figures reinforce those concerns. Headline CPI slowed to 3.5% year-on-year in July from 3.8%, but the moderation was considerably smaller than the expected decline to 3.2%. More importantly, trimmed mean inflation remained unchanged at 3.6%, rather than cooling to the anticipated 3.5%. The persistence of underlying inflation leaves the RBA with little room to declare victory over price pressures and continues to provide a fundamental floor beneath the Australian Dollar.

The immediate question for AUD/USD, however, comes from the US side of the equation.

Markets are waiting for Kevin Warsh’s Jackson Hole speech, where any clearer indication of the Fed’s next policy move could generate a significant reaction in the Dollar. The uncertainty surrounding the event is particularly high after July’s meeting offered investors limited direction on the path ahead.

MUFG/BTMU highlighted the lack of a clear positioning bias heading into the speech, suggesting traders are not heavily committed to either a hawkish or dovish outcome. That creates the potential for an exaggerated Dollar reaction if Warsh provides an unexpectedly strong signal on monetary policy.

The stakes have also been raised by comments from other Fed officials. Kansas Fed President Jeffrey Schmidt continues to see inflation as stubborn, while Cleveland Fed President Beth Hammack has argued that the time has come for policymakers to act through higher interest rates.

For AUD/USD, this leaves the pair caught between two increasingly hawkish policy narratives. Persistent Australian inflation is keeping expectations for additional RBA tightening alive and helping the Aussie maintain its upward momentum, while the prospect of further Fed tightening remains the primary obstacle to extending the rally.

With 0.7200 already being tested, Warsh’s message could determine whether the Australian Dollar can build on its four-day advance or whether the stronger US rate outlook finally forces some profit-taking.

Technical Analysis

The AUD/USD 4-hour chart continues to favour the upside, with the pair maintaining the rising structure that has been developing since the late-July reversal. Price is currently trading around 0.7198, where the latest advance has brought the market into an important resistance area, but there are few signs so far that buyers are losing control of the broader trend.

The clearest feature on the chart is the ascending trendline, which has repeatedly supported the advance and continues to connect a sequence of higher lows. Recent pullbacks have remained relatively shallow, while each recovery has pushed price toward fresh highs. This keeps the underlying structure bullish even as AUD/USD pauses around current levels.

Immediate attention is on the 0.7180–0.7200 region. Price is attempting to establish itself above this area after testing it several times, making it an important breakout-and-retest zone. A brief correction back toward 0.7180 would therefore not necessarily undermine the bullish setup, particularly if the rising trendline continues to provide additional support.

A convincing break above 0.7200 would strengthen the continuation scenario and open the way toward the next major resistance around 0.7270–0.7280. That zone represents the clearest upside target visible on the chart. If momentum accelerates after the breakout, the broader structure leaves scope for an extension toward the 0.7340 area.

On the downside, the first major support below the trendline sits around 0.7095–0.7100. A sustained break beneath this area would represent a more meaningful deterioration in the current bullish structure and could expose the psychological 0.7000 region.

For now, however, AUD/USD continues to print higher highs and higher lows while respecting its ascending trendline. As long as the 0.7180 breakout area holds, the technical picture remains geared toward a continuation through 0.7200 and eventually toward the 0.7270–0.7280 resistance zone.

TRADE RECOMMENDATION

BUY AUD/USD

ENTRY PRICE: 0.7200

STOP LOSS: 0.7095

TAKE PROFIT: 0.7270

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Warren Takunda

Analysts

Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.

Rank

Articless

2929

Win Rate

63.61%

P/L Ratio

0.73

Focus on

XAUUSD, EURUSD, GBPUSD

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