AUD/USD Forecast: Further upside retargets the 0.6700 barrier and beyond

The continuation of the selling bias in the US Dollar (USD) helped AUD/USD extend its recovery further north of 0.6600 the figure in a quite positive start to the new trading week.

The inactivity in the US markets coupled with the increasing selling impetus in the dollar lifted the pair to three-day highs, despite the unchanged macro backdrop where investors are still considering the likelihood of the Federal Reserve (Fed) initiating its easing programme later this year, potentially at the September meeting.

This outlook was reinforced by the cautious tone from several Fed officials last week, who stressed the need for more evidence of inflation moving towards the Fed's target before contemplating rate cuts.

On a more local front, the Aussie Dollar’s bullish stance appeared propped up by the recovery in copper prices and marginal gains in iron ore prices.

Back to the monetary policy front, the recent publication of the Reserve Bank of Australia’s (RBA) Minutes from its May meeting indicated discussions on interest rate hikes, positioning the central bank to potentially be one of the last major institutions to adjust its monetary policy, alongside the Fed. Futures markets now predict

It's noteworthy that the RBA maintained its interest rate at 4.35% this month, adopting a neutral stance and showing flexibility. The RBA's economic forecasts suggest that inflation will remain high until Q2 2025, driven by service price inflation, before returning to the 2%–3% target range by late 2025 and reaching the midpoint by 2026. Investors currently anticipate the RBA will keep its Official Cash Rate (OCR) unchanged at its June 18 meeting, with no rate cuts expected this year.

Given the Fed's commitment to monetary policy tightening and the potential for the RBA to maintain its restrictive stance for an extended period, further consolidation in AUD/USD shouldn't be ruled out in the coming months.

In Oz, markets’ attention will be on the release of preliminary Retail Sales for the month of April, due on Tuesday (-0.4% MoM prev.).

AUD/USD daily chart

AUD/USD short-term technical outlook

Extra gains may lead the AUD/USD to test the May high of 0.6714 (May 16), before aiming for the December 2023 top of 0.6871 and the July 2023 peak of 0.6894 (July 14), all ahead of the key 0.7000 level.

Meanwhile, bearish attempts might bring the pair to the intermediate 100-day and 55-day SMAs in the 0.6560 zone, then to the key 200-day SMA of 0.6528, before falling to the May low of 0.6465 and the 2024 bottom of 0.6362 (April 19).

Looking at the big picture, further gains are anticipated as long as the price remains above the 200-day SMA.

On the four-hour chart, the recovery seems to be gathering extra impulse. That said, first on the upside comes 0.6685 serves as an initial obstacle, followed by 0.6709 and 0.6714. On the other hand, 0.6607 provides immediate support, coming in ahead of 0.6570 and the 200-SMA at 0.6558. The RSI appears stable near 60.