The Australian Dollar (AUD) is facing pressure due to altering global trade dynamics, especially between the United States (US) and China. Despite increased Chinese copper production, trade agreements and Federal Reserve policies are influencing sentiment, with expectations of steady rates in the coming months.

The US Dollar has strengthened as the DXY nears key resistance levels after a 90-day tariff pause between the US and China. Copper production in China expands, reducing global supply concerns, while the People’s Bank of China has minimised gold purchases, reaching the lowest activity in months.

Fed’s Stance On Monetary Policy

The Fed maintains its firm stance on monetary policy with no anticipated rate cuts until late 2025. The AUD struggles against a robust US Dollar amid trade and policy impacts, with markets expecting Fed rate cuts starting September 2025. China’s record-high copper ore imports indicate strong domestic output.

The AUD/USD pair is exhibiting downward momentum, trading around 0.6370, showing bearish indicators. Short-term averages suggest selling, with support found at 0.6366, 0.6352, and 0.6344, and resistance at 0.6387, 0.6392, and 0.6395. The technical outlook remains negative due to commodity price declines and a strong US Dollar.

The recent stretch of AUD weakness stems largely from setbacks in trade sentiment and a widening divergence in monetary policy expectations. With copper output in China hitting highs and the People’s Bank of China sharply dialling back on its gold acquisitions, the market’s sensitivity to the changing pace of industrial demand and central bank activity is highlighting risk exposure that had previously been overlooked. Although higher copper production might seem like a stabilising signal for commodity-tied currencies, it is currently undercut by broader macro forces driving capital away from higher-yield bets.

Impact Of Federal Reserve Policies

Following the Federal Reserve’s firm messaging that rates are likely to remain elevated well into 2025, the US Dollar has continued to benefit from an upward repricing of yield expectations. The DXY, which is nudging towards resistance, has become a barometer for markets trying to position early around Fed timing. Powell has made it clear: wage pressures and sticky core inflation are obstacles to easing. That complicates matters for any investor hoping for a dovish pivot this year.

From our vantage point, price action in AUD/USD is reflecting a well-rooted disbelief in short-term AUD resilience. Near 0.6370, markets appear hesitant to engage long exposure, and technical sell zones remain active. Momentum indicators continue to lean to the downside, with sellers leaning into every minor bounce, keeping intraday support levels fragile. While the pair finds temporary traction near 0.6366, those levels are hardly viewed as durable. Rather, they’re serving as minor friction points before greater pressure emerges lower.

For positioning, the options curve is beginning to show a slight skew towards protective downside strategies, especially in the 0.63–0.6350 corridor. Spot volatility remains contained, though gamma exposure picks up further into month-end, suggesting that any inflation beat from the US or a weaker-than-expected data print from China could jolt the market swiftly. Stability isn’t expected; measured volatility is. The lack of directional conviction above resistance levels like 0.6387 or 0.6395 suggests participants are not yet comfortable rotating into long exposure with carry still stacked heavily against the AUD.

In practice, trades that were once built around the AUD’s commodity sensitivity are now being recalibrated toward interest rate differentials and macro event cycles. Yield attrition is making long-AUD positions less attractive, especially as risk-reward appears skewed toward further loss if Fed bets extend and China slows marginally. We are facilitating fewer calendar spreads at current levels and seeing more interest in short-dated puts, mostly two to three weeks out, focused around key economic releases.

Short option positioning should be carefully managed, particularly considering we’re now entering a patch of central bank commentary and data releases that may layer additional volatility. Traders are better served waiting for clearer evidence of rate divergence closure or stability in Chinese import behaviour before shifting bias. As fundamentals lead the charge, technicals are following, so the weight of directional pressure remains clear until these core drivers shift.

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