AUD/USD Outlook: Move beyond 200-SMA looks likely as pair builds on RBA-inspired rally

• AUD/USD rallies to a three-week high after the RBA’s surprise 25 bps rate hike on Tuesday.
• Bets for an imminent pause by the Fed weigh on the USD and provide an additional boost.
• Investors now look to RBA Governor Lowe’s speech and the Australian GDP on Wednesday.

The AUD/USD pair catches aggressive bids during the Asian session on Tuesday, spiking to its highest level since mid-May, in reaction to the Reserve Bank of Australia's (RBA) surprise 25 basis points (bps) interest-rate hike. The RBA was expected to keep its benchmark cash rate on hold at 3.85% and the markets were pricing in a 30% chance of a lift-off at today’s meeting. The hike follows another unexpected raise in May and puts the benchmark interest rates above 4% for the first time in nearly 12 years. Furthermore, RBA Governor Philip Lowe acknowledged in the accompanying policy statement that inflation is still too high and that high prices would cause more economic damage than a near-term rise in interest rates. Adding to this, the central bank maintains a hawkish bias, saying that some further tightening of monetary policy may be required to bring inflation back to its target range within a reasonable timeframe.

This, along with a modest US Dollar (USD) weakness, provides an additional boost to the AUD/USD pair. The disappointing release of the US ISM Services PMI on Monday, which fell to 50.3 in May, along with the last week's dovish rhetoric from several FOMC officials, reaffirmed expectations for an imminent pause in the Federal Reserve's (Fed) policy tightening cycle. In fact, markets are now pricing in a greater chance that the US central bank will leave interest rates unchanged at the end of a two-day policy meeting on June 14. This led to the overnight sharp decline in the US Treasury bond yields, which keeps the USD bulls on the defensive and acts as a tailwind for the major. That said, the cautious market mood benefits the Greenback's safe-haven status and caps the pair. Nevertheless, spot prices maintain a strong bid tone for the fourth straight day and seem poised to appreciate further.

Moving ahead, there isn't any relevant market-moving economic data due for release from the US on Tuesday, leaving the USD at the mercy of the US bond yields. This, along with the broader risk sentiment, might influence the perceived riskier Aussie and provide some impetus to the AUD/USD pair. Traders, however, might prefer to for fresh cues from the RBA Governor Philip Lowe's speech and the release of the first quarter Australian GDP report on Wednesday. This, in turn, suggests that any meaningful pullback might still be seen as a buying opportunity and remain limited.

Technical Outlook

From a technical perspective, the post-RBA rally pauses near the 61.8% Fibonacci retracement level of the downfall witnessed in May. The said barrier, pegged just ahead of the 0.6700 round-figure mark, nears the very important 200-day Simple Moving Average (SMA) and should act as a pivotal point. A sustained strength beyond should allow the AUD/USD pair to make a fresh attempt to conquer the 100-day SMA, currently around the 0.6745-0.6750 region. This is followed by the May monthly swing high, around the 0.6780 region, which if cleared decisively will be seen as a fresh trigger for bullish traders.

On the flip side, intraday pullbacks might now find decent support near the 50% Fibo. level, around the 0.6640 region. Any further decline is more likely to attract fresh buyers and remain limited near the 0.6600 round-figure mark, which coincides with the 38.2% Fibo. level. A convincing break below the latter will negate any near-term positive bias and make the AUD/USD pair vulnerable. The downward trajectory might then drag spot prices to the 0.6545-0.6450 region (23.6% Fibo.) en route to the 0.6500 psychological mark and the YTD low, around the 0.6460-0.6455 zone touched in May.