AUD/USD Analysis: Extends the range play as traders await key macro data and FOMC meeting

• AUD/USD attracts some buyers on Monday amid the optimism over more stimulus from China.
• Geopolitical risks and bets for a delayed Fed rate cut might keep a lid on any further move-up.
• Traders might also prefer to wait for this week's key data and the crucial FOMC policy decision.

The AUD/USD pair kicks off the new week on a positive note, though lacks bullish conviction and remains confined in a range held over the past week or so through the early European session. China's new stimulus measures to stabilise the local market, to a larger extent, offset the drag on sentiment from the liquidation of property giant China Evergrande and lend some support to the China-proxy Aussie. That said, a combination of factors hold back traders from placing aggressive bullish bets around the currency pair ahead of this week's key data/central bank event risk.

Houthi rebels stepped up their attacks on vessels in the Red Sea and a drone attack on US forces by radical Iran-backed militant groups killed three soldiers. This marks the first death of US service personnel in the region since the Hamas-Israel war broke out on October 7 and raises the risk of a further escalation of geopolitical tensions in the Middle East. Furthermore, diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) in 2024 should keep a lid on any optimism, which should act as a tailwind for the US Dollar (USD) and cap the AUD/USD pair.

The USD bulls, however, seem reluctant amid progress towards the Fed's 2% inflation target, which takes further tightening off the table. The US Bureau of Economic Analysis reported on Friday that the Personal Consumption Expenditures (PCE) Price Index held steady at 2.6% on a yearly basis in December. Moreover, the annual Core PCE Price Index – the Fed's preferred gauge of inflation – decelerated to 2.9% from 3.2% in November. Other details showed that Personal Income rose 0.3% and Personal Spending grew 0.7% in December, pointing to strong demand from US consumers.

This comes on top of the upbeat US Q4 GDP print and suggests that the economy is still in good shape, which should allow the Fed to keep interest rates higher for longer. Hence, the outcome of a two-day FOMC meeting on Wednesday, along with the accompanying policy statement, will be scrutinized for cues about the Fed's next policy move and drive the USD demand. In the meantime, Australian Retail Sales figures on Tuesday, followed by the quarterly Australian CPI report and the official Chinese PMI prints on Wednesday might provide some impetus to the AUD/USD pair.

Investors this week will also confront the release of important US macro data, starting with the Conference Board's Consumer Confidence Index and JOLTS Job Openings data on Tuesday. This will be followed by the ADP report on private-sector employment on Wednesday, the ISM Manufacturing PMI on Thursday and the closely-watched monthly employment details, or the Nonfarm Payrolls (NFP) on Friday. The crucial releases will play a key role in influencing the USD price dynamics and determining the next leg of a directional move for the AUD/USD pair.

Technical Outlook

From a technical perspective, bulls need to wait for some follow-through buying beyond the 0.6620 supply zone, which coincides with the 23.6% Fibonacci retracement level of the December-January downfall, before placing fresh bets. The next relevant hurdle is pegged near the 50-day Simple Moving Average (SMA), around mid-0.6600s, which if cleared decisively will suggest that the AUD/USD pair has formed a near-term bottom. The subsequent move-up has the potential to lift spot prices above the 0.6700 round figure, or the 50% Fibo. level, towards the 61.8% Fibo. level near the 0.6735-0.6740 region.

On the flip side, the lower boundary of a short-term trading range, around the 0.6560-0.6555 area, should act as an immediate support ahead of the 0.6525 region, or a nearly two-month low touched in January. The latter coincides with the 100-day SMA and is closely followed by the 0.6500 psychological mark, which if broken will be seen as a fresh trigger for bearish traders. The AUD/USD pair might then turn vulnerable to accelerate the slide further towards the 0.6465 intermediate support en route to the 0.6400 round figure.