AUD/USD Forecast: Next on tap now comes 0.6800

AUD/USD saw its ongoing strong uptrend somewhat curtailed in a bearish start to the week, returning to the negative zone soon after hitting new six-month highs in the 0.6760-0.6765 band on Monday.

This corrective move in spot came in response to a small rebound in the US Dollar (USD), as investors continued to assess the recent mixed US Nonfarm Payrolls data and its potential implications on the Fed’s plans to start cutting its interest rates sooner than anticipated.

Adding to the Australian dollar's retracement, both copper and iron ore prices showed some signs of weakness following several days of gains.

On the monetary policy front, the Reserve Bank of Australia (RBA), similar to the Federal Reserve (Fed), is expected to be among the last of the G10 central banks to begin cutting interest rates.

In its recent meeting, the RBA maintained a hawkish stance, keeping the official cash rate at 4.35% and signalling flexibility for future decisions. The RBA's minutes from its latest meeting revealed that the decision to hold the policy rate was primarily due to "uncertainty around consumption data and clear evidence of financial stress among many households."

Additionally, the swaps market currently assigns a 25% probability of a rate hike at the upcoming August 6 meeting, increasing to around 50% over subsequent meetings. Overall, the RBA is in no hurry to ease policy, anticipating it will take some time before inflation is sustainably within the 2-3% target range.

Potential easing by the Fed, contrasted with the RBA's likely extended restrictive stance, could support AUD/USD in the coming months. However, concerns about sluggish momentum in the Chinese economy may hinder a sustained recovery of the Australian currency as China continues to face post-pandemic challenges.

On the domestic data front, Home Loans contracted by 2.0% MoM in May, and Investment Lending for Homes decreased by 1.3% in the same month.

AUD/USD daily chart

AUD/USD short-term technical outlook

If bulls push harder and AUD/USD clears the July high of 0.6761 (July 8), it may then challenge the December 2023 top of 0.6871, before the July 2023 peak of 0.6894 (July 14), all ahead of the critical 0.7000 barrier.

Bearish attempts, on the other hand, might push the pair lower, first to the June low of 0.6574 (June 10) and then to the crucial 200-day SMA of 0.6563. A further decrease might result in a return to the May low of 0.6465 and the 2024 low of 0.6362 (April 19).

Overall, the uptrend should continue as long as the AUD/USD trades above the 200-day SMA.

The 4-hour chart shows a considerable comeback in the upward momentum thus far. That said, 0.6761 looks to be the early barrier, ahead of 0.6871. On the opposite side, immediate support is found at 0.6709 ahead of the 55-SMA of 0.6685. The RSI dropped to the 61 region.