|premium|

AUD/USD Forecast: Immediately to the upside comes 0.6700

  • AUD/USD rose to four-month highs and approached 0.6700.
  • The lower US CPI kept the Dollar under heavy pressure.
  • The Australian Wage Price Index missed consensus in Q1.

Continued downward pressure on the US Dollar (USD) added to the recovery in risk-associated assets, driving AUD/USD to the boundaries of the key 0.6700 the figure, or four-month tops on Wednesday.

Furthermore, the USD added to the ongoing bearish sentiment after US inflation data tracked by the Consumer Price Index (CPI) showed another downtick in April, bolstering investors’ view of the potential start of the Fed’s easing programme at some point in the second half of the year.

The latter was also propped up by the drop to multi-week lows in US yields across the curve.

The lower US CPI prints added to Chief Jerome Powell's remarks earlier in the week, when he ruled out a rate hike at the time when he expressed expectations for inflation to remain subdued this year.

Domestically, the Aussie dollar met extra support from a new high in copper prices vs. some side-lined trading in iron ore prices midweek.

In terms of monetary policy, the Reserve Bank of Australia (RBA) chose to maintain its interest rate at 4.35% during its May 7 meeting, reiterating its neutral policy stance and signalling flexibility. The RBA updated its economic projections, foreseeing elevated inflation rates until Q2 2025, primarily driven by ongoing service price inflation. However, the bank anticipates inflation to eventually return to the target range of 2%–3% by the latter part of 2025, reaching the midpoint by 2026.

During the subsequent press briefing, Governor Michele Bullock maintained a balanced perspective, hinting at potential rate adjustments at the current meeting, stating, "We might have to raise, we might not."

Presently, the swaps market has largely discounted the likelihood of further rate hikes in the next six months, with expectations of a decline in the subsequent six months.

Moreover, both the RBA and the Federal Reserve are expected to implement their easing measures later than many of their other G10 counterparts.

Considering the Fed's commitment to monetary policy tightening and the potential for RBA easing later in the year, sustained upward movements in AUD/USD are expected to face constraints.

On the domestic calendar, the Wage Price Index rose by 4.1% YoY in the January–March period.

AUD/USD daily chart

AUD/USD short-term technical outlook

Extra gains might push the AUD/USD to initially test the round level of 0.6700 prior to the December 2023 peak of 0.6871 and the July 2023 high of 0.6894 (July 14), all ahead of the key 0.7000 yardstick.

Meanwhile, if bears retake control, there is some short-term resistance at the 100-day and 55-day SMAs of 0.6569 and 0.6545, respectively, before the more critical 200-day SMA of 0.6521, all before falling to the May low of 0.6465 and the 2024 bottom of 0.6362 (April 19).

Looking at the big picture, more gains are on the table as long as spot trades remain above the 200-day SMA.

On the four-hour chart, the buying momentum appears to be regaining strength. However, early resistance forms around 0.6700 before 0.6871. On the downside, 0.6571 is an immediate support level, just ahead of the 200-SMA of 0.6536. The RSI climbed to around 80.

Premium

You have reached your limit of 3 free articles for this month.

Start your subscription and get access to all our original articles.

Subscribe to PremiumSign In

Author

Pablo Piovano

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

More from Pablo Piovano
Share:

Editor's Picks

GBP/USD weakens below 1.3250 on UK political risks, BoE repricing

The GBP/USD pair trades in negative territory around 1.3245 during the early Asian trading hours on Wednesday. Traders await the UK political developments, focusing on potential leadership by Andy Burnham and adherence to existing fiscal rules. Bank of England Governor Andrew Bailey is set to speak later in the day. On Thursday, all eyes will be on the US jobs data for June.

EUR/USD declines to near 1.1400 as softer German inflation undercuts ECB hike bets

The EUR/USD pair loses momentum to near 1.1410 during the early Asian trading hours on Wednesday, pressured by receding bets for aggressive tightening by the European Central Bank (ECB). Traders will take more cues from the preliminary reading of the Harmonized Index of Consumer Prices from the Eurozone and US Manufacturing Purchasing Managers Index report, which are due later in the day.

Gold falls back below $4,000 amid a bullish USD

Gold drops back below $4,000 following the previous day's two-way price swings as the US Dollar stands firm amid safe-haven demand, bolstered by uncertainty surrounding US-Iran talks. Meanwhile, Tuesday's strong labor market data reaffirmed bets for a Fed rate hike in 2026, adding to the Greenback's strength at the expense of the bullion.

The quarter ended bright green, but the market changed horses several times
Lower oil may support demand more than it lowers inflation, which keeps the Fed, front-end yields and the $ firmly in the driver’s seat. The S&P 500 has just delivered its best quarter in six years, the Nasdaq has found its stride again, and semiconductors have posted their strongest quarter on record.
Why a hawkish Bank of Japan could trigger the next Bitcoin sell-off

The Japanese Yen hits a 40-year low of 162.00 against the US Dollar, raising concerns about intervention or additional rate hikes by the Bank of Japan. BoJ may sell US Treasuries to buy back Yen, potentially pushing US bond yields higher and making Bitcoin less attractive to investors.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.