Dollar Poised for Third Weekly Gain on Trade Optimism; Aussie Climbs Amid Fed Rate Cut Hopes

The U.S. dollar has embarked on a short-term technical rebound, positioning itself for a third consecutive weekly gain as markets digest trade optimism and mixed signals from global central banks. Meanwhile, the Australian dollar (AUD) has found footing against the U.S. dollar (AUD/USD), rising toward key resistance levels on the back of weak U.S. economic data and speculation of Federal Reserve (Fed) rate cuts. But will these trends hold, or are they fleeting? Let’s dissect the data and dynamics shaping these currencies.

The Dollar’s Technical Rebound and Trade Optimism Drivers

The U.S. Dollar Index (DXY) has clawed back from its April slump, during which it fell over 11% to multi-year lows. Current resistance levels cluster around 99.95–100.42—a key inflection point tied to the 2023/2024 low-day close. A sustained breakout above 100.42 could trigger a rally toward 101.77–102.99, with the yearly open at 103.49 serving as a longer-term ceiling. Conversely, a close below 97.71–98.39 risks a freefall toward 95.17 or even 94.65, the March 2020 low.

The rebound’s catalyst? Trade optimism. U.S. President Donald Trump’s hints at de-escalation with China and progress on Canada trade deals have historically buoyed the dollar. However, markets remain cautious: tariff uncertainties linger, and a potential trade war resurgence could undercut this optimism. The May 2025 Non-Farm Payroll (NFP) report and the Fed’s June rate decision will be critical tests for the dollar’s resilience.

The Aussie’s Climb: Weak USD and Fed Rate Cut Hopes

The AUD/USD pair has surged to 0.6400, up 0.26%, as traders price in a Fed rate cut by June 2025. This expectation stems from the U.S. economy’s soft patch, including a Q1 2025 GDP contraction of 0.3%, which dented the dollar’s appeal. Technical indicators now paint a bullish near-term picture:
- 10-day SMA: 0.6391 (current support)
- 100-day SMA: 0.6281 (stronger support)
- RSI: 56.96 (neutral but trending upward)
- MACD: Buy signal confirmed

Yet the 200-day SMA at 0.6463 looms as a major hurdle, reflecting a broader bearish trend since 2023. Seasonality also works against the AUD: May is historically its second-weakest month since 1971, averaging a -0.45% decline. Traders must watch the 50% Fibonacci retracement at 0.6430—a level that could cap gains if seasonal weakness resurfaces.

Risks and Considerations

The AUD’s rise hinges on two volatile factors:
1. Commodity Prices: China’s weak manufacturing PMI and U.S.-China trade tensions threaten demand for Australian exports like copper and iron ore.
2. RBA Policy: While the Reserve Bank of Australia (RBA) has signaled caution amid soft CPI data, any delay in rate cuts could undermine the AUD’s gains.

Meanwhile, the USD’s trade optimism narrative faces a reckoning. The NFP report and Fed’s June meeting will test whether the labor market’s health justifies further dollar strength—or if structural risks (e.g., debt ceiling debates, geopolitical tensions) reignite selling.

Conclusion: A Delicate Balance of Hope and Caution

The dollar’s near-term technical rebound and trade optimism suggest it could breach 100.42, but risks like a weak NFP or Fed dovish pivot could reverse momentum. For the AUD, the path to 0.6463 remains open as long as USD weakness persists, but traders must stay wary of seasonal headwinds and commodity volatility.

Key data points to monitor:
- DXY Resistance: 100.42 (immediate), 101.77 (major)
- AUD/USD Resistance: 0.6430 (Fibonacci), 0.6463 (200-day SMA)
- Fed Rate Decision: June 2025 (critical for USD/AUD dynamics)

In this tenuous landscape, patience and discipline are paramount. The dollar’s rebound and AUD’s climb are real, but their sustainability depends on data and geopolitical developments that could redefine market narratives by summer’s end.