AUD/USD Breaks Out Ahead of the Fed: More Upside?

Jasper Osita - Market Analyst

2025-10-29 13:28:48

  • AUD/USD breaks above 0.65325, confirming bullish displacement ahead of the Fed’s expected rate cut.
  • The Aussie gains strength on robust inflation data and fading RBA rate-cut bets, amplifying its advantage over a softening U.S. dollar.
  • Price is consolidating above the breakout zone, with a clean Fair Value Gap (FVG) at 0.6559–0.6578 offering a potential re-entry before targeting 0.6628 and 0.6700.

AUD/USD Breaks Out Before the Fed Decision

While traders brace for the Federal Reserve’s highly anticipated rate cut, AUD/USD has already made its move.

The pair surged past its 0.65325 breakout zone, breaking weeks of consolidation and confirming a structural shift toward bullish continuation.

This advance came as the market priced in a near-certain 25 bps Fed cut, pushing the dollar lower. Meanwhile, Australia’s Q3 inflation data surprised to the upside, with quarterly CPI rising 1.3% and annual inflation steady at 3.2% — a strong argument for the RBA to hold rates for longer.

The contrast is clear: a softening Fed versus a steady RBA. That interest rate divergence, combined with upbeat risk sentiment in global markets, has propelled the Aussie to lead G10 gains heading into the FOMC announcement.

Fundamental Drivers Behind the Breakout

1. Fed’s Easing Bias

Markets are fully pricing in a 25 bps rate cut, with traders positioning for a dovish shift.

Any hint from Powell that this marks the start of an easing cycle could further pressure the U.S. dollar, reinforcing AUD/USD’s upward trajectory.

2. Australia’s Inflation Resilience

A stronger CPI print curbs the odds of an RBA rate cut, maintaining higher yield appeal for the AUD relative to other majors. This divergence strengthens the fundamental case for continued AUD/USD upside.

3. Broader Risk Sentiment

Global equity strength, firm commodity prices, and a “risk-on” tone continue to favor the Aussie — traditionally seen as a pro-growth currency tied to global demand and China’s industrial outlook.

The Breakout Already Happened

From an institutional lens, the real move occurred before the event.

The breakout above 0.65325 signaled the transition from accumulation to expansion — a key behavioral trait of smart money. Weeks of consolidation had built liquidity on both sides, and once swept, price displaced strongly to the upside.

Now, smart money typically seeks mitigation before continuation. The Daily Fair Value Gap (0.65594–0.65781) is the clearest re-entry area where price could rebalance inefficiencies before resuming its bullish leg.

Below that, the Order Block around 0.6500–0.6530 remains the secondary defense line — the last demand zone that supports the broader bullish structure.

Technical Outlook

Market Structure Overview

AUD/USD remains in a strong bullish formation following the confirmed breakout.

Price is consolidating above the Daily FVG (0.65594–0.65781) and may use this area as the next mitigation zone before expanding higher toward 0.66285 — the next visible liquidity target.

Institutional flow remains intact, with clean displacement candles, minimal wicks, and aligned FVGs on multiple timeframes.

If a deeper retracement occurs, the Order Block below 0.65325 provides the secondary level of interest, where prior sell-side liquidity rests.

Bullish Scenario: Mitigation and Continuation

If AUD/USD retraces into the Daily FVG and shows signs of rejection, expect:

  1. A liquidity sweep of short-term lows into the FVG.
  2. Bullish MSS confirmation on lower timeframes.
  3. A reaction toward 0.6628 followed by continuation toward 0.6700.

A daily close above 0.6628 would validate strong momentum and likely attract additional trend-following flows.

Bearish Scenario: Deep Retracement Toward the Order Block

If the Fed delivers a hawkish surprise or the U.S. dollar gains strength, the pair could break below the Daily FVG and revisit the 0.65325 breakout zone.

A rejection from this level would still maintain the bullish structure, but a daily close below 0.6530 would invalidate the breakout and shift focus toward 0.6450–0.6420 liquidity levels.

Key Technical Levels

LevelDescriptionBias
0.66285Upper liquidity target / previous highResistance
0.65781–0.65594Daily FVG / mitigation zoneBullish re-entry area
0.65325Breakout structure / Order Block topKey support
0.6500–0.6420Deeper liquidity / invalidation zoneBearish extension

How to Trade the Setup

1. Identify the Context

  • Structure is bullish on both the daily and 4-hour charts.
  • The breakout zone at 0.65325 has flipped into structural support.
  • The Daily FVG (0.6559–0.6578) serves as the near-term mitigation zone for potential continuation.

2. Wait for Retracement

Rather than chasing the rally, wait for a pullback into the Daily FVG.

This rebalancing move typically offers a high-probability entry, aligning with the broader institutional flow.

3. Confirmation Model

On intraday timeframes (H1–H4), look for:

  • A liquidity sweep into the FVG.
  • A bullish Market Structure Shift (MSS) signaling renewed demand.
  • A newly formed FVG or Order Block confirming re-entry for continuation.

4. Execution Plan

  • Entry Zone: 0.6560–0.6575 (within the Daily FVG).
  • Stop: Below 0.6530 (breakout invalidation).
  • Target 1: 0.66285 (liquidity high).
  • Target 2: 0.6700 (extended continuation target).

Should the Fed adopt a hawkish tone or hint at a pause, expect a deeper retracement possibly testing the Order Block around 0.65325 before reaccumulation resumes.

Trading Psychology: Follow the Flow, Not the Fear

The breakout has already happened — the market revealed its intent before the Fed.

In event-driven markets, professionals don’t wait for the news; they anticipate structure. Retail traders react to volatility, but institutions create it.

This AUD/USD structure reflects the classic smart money cycle:

Manipulation → Displacement → Mitigation → Continuation.

The best play now is to trade the mitigation phase — the point where smart money re-enters after rebalancing inefficiencies.

Final Thoughts

The AUD/USD breakout ahead of the Fed decision is a textbook example of institutional flow anticipating macro catalysts.

Fundamentals align with structure: the U.S. is easing, Australia is holding, and the technicals show strong displacement and clean FVGs.

Heading into the Fed meeting, focus less on the announcement itself and more on how price behaves around the 0.6559–0.6578 zone.

If buyers step back in, the next leg toward 0.6628–0.6700 is likely the continuation phase — not a new trend, but the follow-through of a move that started days before Powell even speaks.

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This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

작성자

Jasper has been in the markets since 2019 trading currencies, indices and commodities like Gold. His approach in the market is heavily accompanied by technical analysis and of course, supported by fundamentals. He has a background in trading proprietary firms and has been teaching students how to navigate themselves in the markets from basic to advance concepts.

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