AUD/USD Drops on RBA, PBoC Rate Cuts Despite Bullish Technical Setup Emerging

The AUD/USD fell after a small bounce as dovish central banks and domestic political turmoil weighed on the pair. The pair had risen over 0.50% in the previous session but the rally stalled as rate cuts from the RBA and PBoC dampened sentiment.

The RBA cut the Official Cash Rate (OCR) by 25bps to 3.85% – as expected but still a cautious move. Governor Michele Bullock said it was a prudent step to manage inflation and also signalled further easing could follow. The PBoC cut the one-year and five-year Loan Prime Rates (LPR) by 10bps as China’s economic softness continues to weigh and indirectly on the AUD due to the close trade ties between the two countries.

The Aussie was also pressured by renewed domestic political instability. The collapse of the coalition between the National Party and the Liberal Party and a stronger mandate for the Labor Party has increased uncertainty in economic policy making. Investors are being cautious and that’s undermining confidence in the AUD.

Global Headwinds: Mixed Data and Trade Tensions

The US Dollar Index (DXY) held near 100.40 after Moody’s downgraded the US credit rating from Aaa to Aa1 citing debt sustainability concerns with federal debt projected to hit 134% of GDP by 2035. Soft US CPI and PPI data has sparked speculation of Fed rate cuts in 2025 which has tempered Dollar strength. Disappointing US retail sales added to the fears of a slowing domestic economy.

China, Australia’s largest trading partner, reported mixed data. Industrial production beat expectations with a 6.1% YoY gain in April but retail sales growth slowed to 5.1% which missed estimates. Tensions between Washington and Beijing added to the noise as optimism over a 90-day trade truce clashed with news of new US blacklists targeting Chinese semiconductor firms.

Domestic Strength Outweighed by Global ForcesDespite the macro headwinds, the Australian labour market is showing some resilience. April jobs added 89,000 – well above expectations – and the unemployment rate held steady at 4.1%. Wages rose 3.4% YoY in Q1 2025 beating forecasts. But that hasn’t been enough to offset the drag from rate cuts and political noise.

Technical Outlook: Bullish Breakout on the Horizon

From a technical perspective, AUD/USD is close to a breakout. The pair has formed a symmetrical triangle on the 2-hour chart with a series of higher lows indicating buying pressure. A bullish engulfing candle has formed above both the horizontal support at $0.6430 and the 50-EMA at $0.6427 – two key levels that are now acting as a springboard.

Momentum indicators are strengthening with the MACD histogram flipping green and crossing above the zero line. A break above the triangle resistance at $0.6465 could set the stage for a move to $0.6490 and $0.6515 – previous supply zones and natural price magnets.

Trade Setup:

• Entry: On confirmed breakout above $0.6465

• Stop Loss: Below $0.6430

• Targets: $0.6490 and $0.6515

• Technical Bias: Bullish if triangle resistance breaks with volume

Wait for confirmation before entry as fakeouts are common near triangle apexes. If the bulls get momentum this could be the start of a near-term bullish leg for AUD/USD despite the macro headwinds.