19.05.202601:18 Forex Analysis & Reviews: AUD/USD: Forecast. The Australian Dollar Retains Positions Gained Against the Retreating US Dollar

On Monday, the AUD/USD pair halted its two-day decline and is maintaining a moderate increase. However, the fundamental factors require traders expecting growth to take a cautious approach.

The US dollar is retreating from its peak reached on April 7, as bulls prefer to lock in some profits following the recent strengthening observed over the last week. This, in turn, is leading to some intraday short position closures in the AUD/USD pair. However, any significant weakening of the US dollar is likely to be limited amid ongoing geopolitical uncertainty and rising expectations of Federal Reserve interest rate hikes.

In terms of recent news related to the Middle Eastern crisis, a drone strike caused a fire at a nuclear power plant in the United Arab Emirates (UAE), while Saudi Arabia reported intercepting three drones launched from Iraq. Additionally, US President Donald Trump warned Iran on Sunday that "the clock is ticking" and that "nothing will remain" if appropriate measures are not taken, emphasizing that "time is of the essence."

This raises the risk of further escalation of conflicts in the region and undermines hopes for a peace agreement between the US and Iran amid stalled negotiations, continuing to support the US dollar as a safe-haven asset. The conflict between the US and Iran is also pushing oil prices to a two-week high, reviving inflationary concerns and strengthening expectations for a more hawkish approach from the US central bank.

This could further support the dollar and limit the growth potential of AUD/USD. Therefore, it is advisable to wait for clear confirmation of sustainable growth before concluding that the recent corrective decline that began at the peak reached early this month—the highest level since April 2022—has run its course and to open positions for further growth.

In the absence of significant economic reports from the US on Monday, movements in the dollar's exchange rate will impact the AUD/USD pair and create short-term trading opportunities.

From a technical perspective, the pair has dropped below the 20-day SMA but remains above the 50-day SMA. The Relative Strength Index (RSI) is still closer to neutrality despite being in negative territory. The overall trend is upward, along with the important 200-day SMA. Therefore, the current decline is expected to be only temporary.