The AUD/USD is approaching a key breakout above the 0.64 level as US bond yields show signs of a swing high. The correlation between AUD/USD and the AU-US 2-year yield spread appears to be strengthening again, which could work in favor of Aussie bulls if US yields continue their decline.
The Fed’s Dovish Tilt: A Catalyst for AUD/USD Movement
Despite maintaining rates at 3.9% for 2025, the Federal Reserve struck a more cautious tone by revising growth forecasts downward while acknowledging inflationary risks. The key takeaways from the Fed’s decision:
- Interest rates held steady at 4.25% – 4.5% (as expected)
- 2025 GDP forecast cut to 1.7% (previously 2.1%)
- 2026 GDP lowered to 1.8%
- Core PCE inflation for 2025 raised to 2.7% (from 2.5%)
- Balance sheet runoff to slow from April
Wall Street reacted positively, with the S&P 500, Nasdaq, and Dow Jones all gaining ground. Gold surged to a fresh record high, reinforcing risk-on sentiment. The US 2-year yield, a key driver for USD movements, saw its biggest daily range in two weeks before closing below 4%, signaling potential downside continuation.
AUD/USD Technical Outlook: Bulls Gaining Strength
While AUD/USD closed the day flat, the presence of a long lower wick around the 10-day and 20-day EMAs indicates strong buyer interest. Price action remains constructive as the pair continues to grind higher from its recent 0.62 support level.
- 4-hour chart analysis: A bullish candle formation with increasing volume around 0.6320 suggests a swing low.
- Yield spread dynamics: The AU-US 2-year yield differential is rising, mainly due to falling US yields rather than Australian strength, which still favors AUD/USD appreciation.
- Key resistance: A decisive break above 0.64 is required to confirm bullish momentum, with 38.2% Fibonacci retracement level acting as the next target.
- Support levels: Traders may seek dips toward 0.6320-0.6340 for potential long entries.
Potential Profit Scenario – Understanding the Risks
If AUD/USD rallies from its current levels to 0.64, let’s break down a hypothetical profit scenario on a $10,000 investment with 1:100 leverage:
- Trade size: $1,000,000 (leveraged at 1:100)
- Entry price: 0.6320
- Target price: 0.6400
- Pip gain: 80 pips
- Lot size: 10 standard lots (1 pip = $10 per lot)
- Potential profit: $8,000 (80 pips × $10 × 10 lots)
Risk Disclaimer: Trading Forex involves significant risk and is not suitable for all investors. The above scenario is an example and should not be considered a guarantee of returns. Losses can exceed deposits, and past performance does not predict future results. Always use appropriate risk management strategies.
Upcoming Economic Events to Watch
Market volatility will remain high as key economic reports unfold. The Australian employment data and the Bank of England’s interest rate decision could heavily influence AUD/USD’s next move:
- 08:45 – New Zealand Q4 GDP
- 11:30 – Australian Employment (Feb)
- 18:00 – UK Employment Report
- 19:30 – SNB Interest Rate Decision (25bp cut expected)
- 23:00 – BOE Interest Rate Decision (No Change Expected)
- 23:30 – US Jobless Claims, Philly Fed Manufacturing
Final Thoughts: A Trading Opportunity, Not a Guarantee
With US yields under pressure and key technical levels holding firm, AUD/USD has the potential for an upward move. However, market conditions can change rapidly, and proper risk management is essential.
This is a free market analysis and not investment advice. For personalized trading guidance, register at GeneralIFX.com and claim a free consultation with our experts.
