The Australian Dollar (AUD) staged an impressive rebound against the US Dollar (USD) on Tuesday, climbing after the Reserve Bank of Australia (RBA) unexpectedly held its benchmark interest rate steady at 3.85%, defying consensus expectations of a rate cut. 

This hawkish surprise has reinvigorated bullish sentiment in the AUD/USD currency pair, currently hovering near 0.6530, with technical indicators aligning to suggest further upside momentum. With their trademark clarity, Gradiopexo’s team dives into the complexities of this topic.

RBA Surprises Markets: Rate Hold Boosts AUD

In a widely unexpected move, the RBA resisted market pressure to lower rates, despite softening domestic data. According to a recent Reuters poll, 31 out of 37 surveyed economists anticipated a 25-basis-point rate cut, which would have marked the central bank’s third consecutive reduction. 

Instead, the RBA maintained its current stance, signaling confidence in its inflation outlook and labor market resilience.

This policy decision comes amid rising uncertainty about global economic conditions and commodity prices, two key variables that directly influence the Australian economy. The RBA’s hawkish hold has been interpreted by markets as a sign of underlying strength, lifting the AUD/USD off recent lows and reversing the sharp 1% decline seen on Monday.

Fed Policy Outlook and US Dollar Performance

While the US Federal Reserve (Fed) has kept its federal funds rate steady between 4.25% and 4.50%, strong Non-Farm Payrolls (NFP) data released last Thursday tempered expectations of a rate cut in July. The surprisingly robust US labor market has supported US Treasury yields, typically a bullish factor for the USD due to favorable interest rate differentials.

However, this dynamic appears to be stalling. Despite positive jobs data, the Greenback has lost some momentum, particularly as global trade uncertainties and geopolitical tensions cloud risk sentiment. These factors are capping gains in the US Dollar and giving the Australian Dollar room to recover, particularly against the backdrop of the RBA’s hawkish stance.

Technical Outlook: Golden Cross Confirms Uptrend

From a technical analysis perspective, the AUD/USD has formed a Golden Cross, a bullish signal that occurs when the 50-day Exponential Moving Average (EMA) crosses above the 200-day EMA. This crossover, currently observed at 0.6475 (50-day EMA) and 0.6436 (200-day EMA), typically indicates a shift toward a longer-term uptrend and invites increased interest from trend-following market participants.

Additionally, AUD/USD is testing the 61.8% Fibonacci retracement level of the September–April decline, which serves as immediate resistance near 0.6550. A decisive break above this key level would signal further upside potential. However, price action remains trapped within a rising wedge pattern on the daily chart, a formation often considered a sign of waning bullish momentum.

Momentum Indicators Signal Mild Optimism

The Relative Strength Index (RSI), currently sitting at 54, points to neutral momentum with a slight bullish tilt. While not in overbought territory, this reading suggests buyers have room to push higher, especially if near-term resistance zones are broken.

Key upside targets include the psychological 0.6600 level, followed by the November high at 0.6689, and the 78.6% Fibonacci retracement at 0.6722. A sustained move through these zones would confirm a structural bullish breakout and potentially attract momentum-driven buying interest.

Downside Risks Remain: Wedge Breakdown Could Reverse Gains

Despite the favorable backdrop, traders must remain vigilant of potential bearish triggers. A breakdown below rising wedge support, currently near 0.6372, would represent a significant shift in market structure. Such a move could expose AUD/USD to a deeper correction toward the 0.6200 support zone, a level last seen in early 2024.

Any renewed strength in the US Dollar Index (DXY), driven by a more hawkish Fed tone or risk-off market sentiment, could also weigh heavily on the pair. Moreover, a deterioration in key Australian macro data or weaker-than-expected commodity prices, especially iron ore and coal, may threaten the current bullish setup.

Conclusion: AUD/USD’s Rebound Fueled by Policy Divergence

The RBA’s decision to hold rates steady has thrown a lifeline to the Australian Dollar, highlighting a growing divergence in monetary policy trajectories between Australia and the United States. With the Fed increasingly cautious about early rate cuts and the RBA pushing back against market expectations, the AUD/USD exchange rate finds itself in a technically constructive environment.

While immediate focus lies on the 0.6550 resistance and the implications of the Golden Cross, the market remains sensitive to upcoming economic releases, including US inflation data, RBA meeting minutes, and key Australian employment figures. These events could provide further clarity on central bank intentions and dictate the pair’s trajectory over the coming weeks.