The AUD/USD currency pair is gaining bullish traction in May 2025, driven by improving Australian macroeconomic indicators, weakening US economic performance, supportive sentiment dynamics, and a technically robust uptrend. This article presents a complete multi-angle analysis of the trade idea to buy AUD/USD, reflecting the intersection of economic divergence, market positioning, and trend momentum.

Fundamental Analysis

Monetary Policy & Inflation:
The Reserve Bank of Australia (RBA) held rates steady at 4.1% in April 2025 but is expected to begin easing by the third quarter. However, the tone remains data-dependent. Australian inflation remains sticky, with the most recent monthly print at 0.9%, suggesting that while rate cuts may be priced in, the RBA still sees inflation risks on the horizon.

The US Federal Reserve, on the other hand, is facing stagflationary conditions. While annual inflation remains around 2.4%, the US economy contracted by -0.3% in Q1 2025, and disinflation is visible on a month-over-month basis (-0.1% MoM). The Fed has kept rates between 4.25% and 4.50%, but markets are now pricing in a dovish pivot amid rising recession risk.

→ Conclusion: The Fed’s policy path is turning more dovish than the RBA’s. With AUD offering higher real yield expectations, the divergence supports upside in AUD/USD.

Growth Outlook:
Australia’s economic performance has been revised upward, with GDP growth projected at 2.1% for 2025, supported by strong household consumption and investment. In contrast, the US economy is showing early signs of contraction.

The stark difference in forward-looking growth potential tilts the balance in favour of the Australian dollar, especially as commodity demand in Asia improves — indirectly benefitting Australia’s export sectors.

Labour Market & Fiscal Health:
Australian unemployment is stable at 4.1%, reflecting resilience. The US unemployment rate has edged up to 4.2%, indicating mild labour market softening.

Fiscal discipline is another advantage for AUD — Australia’s budget is in surplus (+0.9% of GDP), while US fiscal deficit has worsened to -6.2%, with debt-to-GDP over 122%. This deteriorating US fiscal position remains a structural headwind for the dollar.

Trade & Current Account:
Australia’s trade surplus has expanded to AUD 6.9 billion, and although the current account remains in deficit, it is modest at -1.8% of GDP. The US current account deficit, however, is severe at -3.9% of GDP, and the trade deficit sits at -$140 billion — highlighting poor external fundamentals.

→ Conclusion: Macroeconomic momentum, real yield advantage, and external sector strength all favour the Australian dollar over the US dollar.

Sentiment Analysis

Retail Positioning:
Retail sentiment on AUD/USD is currently mixed, with 58% of traders long, indicating a relatively balanced market. However, the pair has become a favourite among institutional flows in recent weeks, as risk appetite improves globally.

Market Behaviour:
The Australian dollar is now the strongest performer among G10 currencies, driven by yield support and upward revisions to growth forecasts. Meanwhile, the USD has lost appeal as a safe haven due to political tensions, fiscal slippage, and weakening data.

Conclusion: Sentiment leans cautiously bullish. Although not yet a contrarian extreme, the net positioning is supportive of further gains in AUD/USD, especially as fundamentals remain favourable for AUD.

Technical Analysis

Ichimoku Cloud:

• Price is above the Kumo – confirms a breakout and trend establishment.
• Tenkan-sen is above Kijun-sen – bullish crossover confirms upward momentum.
• Chikou Span is well above price and the cloud – reinforcing trend strength.
• Future Kumo is bullish – Span A clearly above Span B, indicating forward momentum.

RSI:

• RSI stands at 58.08, with upward slope and no overbought signal.
• The RSI is comfortably above its signal line – confirms bullish pressure with room for continuation.

MACD:

• MACD is above the signal line, histogram positive – momentum is gaining gradually.
• No divergence observed – confirms trend is healthy, not exhausted.

Price Action & Volume:

• Clean sequence of higher highs and higher lows since late March.
• Price is retesting the breakout zone around 0.6455, now acting as support.
• Volume increases are visible during bullish sessions, confirming participation behind the move.

Conclusion: Technical signals point to trend continuation. AUD/USD is consolidating gains but remains within a strong upward structure, with upside targets toward 0.6600.

Final Verdict

The trade idea to buy AUD/USD is validated by a powerful alignment of:

• Fundamental strength in Australia relative to the US,
• A more favourable yield outlook as the Fed turns dovish,
• Improving sentiment and positioning flows toward AUD, and
• A textbook bullish technical setup with clear price action structure and Ichimoku confirmation.

As the divergence between the Australian and US economies continues to widen, this trade remains one of the most compelling macro-driven opportunities in the G10 space.

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