AUD/USD Forecast: Bearish potential intact, attempted recovery could get sold into

The AUD/USD pair attracts some dip-buying on Thursday and steadily climbs back above the 0.6600 mark during the Asian session. The US Dollar consolidates its recent strong gains to over a three-month peak and turns out to be a key factor lending some support to the major. That said, expectations for more aggressive rate hikes by the Federal Reserve, along with looming recession risks, should act as a tailwind for the safe-haven buck and keep a lid on any meaningful upside for the risk-sensitive Aussie. Apart from this, the Reserve Bank of Australia's (RBA) dovish shift on Tuesday suggests that the path of least resistance for spot prices remains to the downside and warrants caution for aggressive bullish traders.

On the second day of his testimony to the US Congress on Wednesday, Fed Chair Jerome Powell reiterated that interest rates would have to go higher and possibly faster to tame stubbornly high inflation. This lifted bets for a jumbo 50 bps lift-off at the next FOMC policy meeting on March 21-22, which remains supportive of elevated US Treasury bond yields and might continue to offer support to the Greenback.  Meanwhile, the prospects for further tightening the Fed add to worries about economic headwinds stemming from rapidly rising borrowing costs. Adding to this, fading hopes for a strong economic recovery in China tempers investors' appetite for riskier assets and should cap gains for the AUD/USD pair.

Furthermore, the RBA signalled earlier this week that it might be nearing the end of its rate-hiking cycle. The speculations were fueled by the monetary policy statement, wherein the central bank changed a reference from “further increases in rates” to “further tightening of monetary policy” would be needed. This, in turn, adds credence to the near-term negative outlook for the AUD/USD pair and suggests that any subsequent move up is more likely to get sold into. Traders now look to the US economic docket, featuring the release of Challenger Job Cuts and the usual Weekly Initial Jobless Claims. The focus, however, will remain on the US monthly employment details, popularly known as the NFP report, due on Friday.

Technical Outlook

From a technical perspective, the post-RBA slump confirmed a fresh bearish breakdown through a short-term trading range support near the 0.6700 mark and supports prospects for further losses. Moreover, Relative Strength Index (RSI) on the daily chart has also recovered from oversold territory. That said, the YTD low, around the 0.6670-0.6665 region, which coincides with the 61.8% Fibonacci retracement level of the rally from the October 2022 low, could lend some support to the AUD/USD pair. Some follow-through selling could pave the way for a slide towards testing the 0.6600 round-figure mark. The latter should act as a strong base for spot prices, which if broken decisively will set the stage for an extension of the downward trajectory.

On the flip side, any subsequent recovery beyond the overnight swing high, around the 0.6625-0.6630 area, is more likely to attract fresh sellers near 50% Fibo. level, around the 0.6660-0.6665 region. This, in turn, should cap the AUD/USD pair near the 0.6690-0.6700 horizontal support breakpoint. That said, a sustained strength beyond might trigger a short-covering move and lift spot prices to the 0.6770-0.6780 hurdle. This is closely followed by the 0.6800 confluence, comprising the 200-day SMA and the 38.2% Fibo. level, which if conquered might shift the near-term bias in favour of bullish traders.