AUD/USD Rally Faces Headwinds: Can the Pair Sustain Above Key Technical Levels?

Mixed Signals for the Australian Dollar as Greenback Strengthens

The AUD/USD pair is navigating choppy waters as the US Dollar Index (DXY) extends gains to a new weekly high near 98.35, pressuring the Australian Dollar lower toward 0.6685 during mid-week trading. Despite softer sentiment, the pair maintains its footing above the 20-day Exponential Moving Average (EMA) at 0.6651, suggesting underlying support remains intact for the upside momentum.

The weakness in AUD/USD comes despite dovish signals from the Federal Reserve’s December FOMC minutes, which underscored policymakers’ commitment to continued monetary easing. Following the recent 25 basis point rate cut that brought the Fed’s target range to 3.50%-3.75%, officials indicated a preference for further reductions aimed at preventing deterioration in labor market conditions. However, a stronger US Dollar is currently overriding these accommodative signals, a pattern that has characterized recent trading dynamics heading into 2025.

RBA Policy Divergence Creates Uncertainty

Meanwhile, the Reserve Bank of Australia (RBA) has signaled a contrarian approach, hinting at potential rate hikes should inflation persist above target levels in 2026. This policy divergence between the two central banks is creating mixed directional pressure on AUD/USD, with the Australian Dollar caught between accommodative Fed messaging and potentially hawkish RBA guidance.

Technical Picture Points to Upside Potential

From a technical perspective, AUD/USD maintains a constructive setup despite near-term weakness. The 14-day Relative Strength Index (RSI) registers at 61, reflecting positive momentum while remaining outside overbought territory. As long as the pair sustains above the rising 20-day EMA, the intermediate trend remains tilted toward strength.

A decisive daily close above the December 29 resistance at 0.6725 could unlock fresh buying interest toward the 0.6800 psychological barrier. Current pullbacks appear corrective in nature within the broader uptrend, rather than signaling a fundamental shift lower. The key to confirming continued strength in AUD/USD will be whether the pair can recapture levels above 0.6730 and establish new momentum from there.