AUD/USD Forecast: Next on the downside comes 0.6520

Wednesday saw another daily advance in the US Dollar (USD), causing AUD/USD to add to Tuesday’s corrective decline and revisit four-day lows near 0.6560.

In the meantime, the Greenback managed to maintain its recovery in place this time, helped by increasing yields, while the broader macroeconomic landscape remained consistent with the expected commencement of the Fed's easing programme sometime before the year's end (probably September).

As the Australian dollar retraced on a daily basis, copper prices experienced another drop, while iron ore prices came under pressure after nearing the $120.00 mark per tonne for the first time since late February during the previous session.

Turning to domestic affairs, it is worth recalling that the Reserve Bank of Australia (RBA) kept its interest rate unchanged at 4.35% at its event early on Tuesday. Furthermore, the bank reiterated its neutral policy stance, stating that "the Board is not ruling anything in or out." The RBA revised its macroeconomic forecasts, projecting higher headline and trimmed mean inflation rates up to Q2 2025, primarily driven by ongoing service price inflation. Nevertheless, the bank anticipates inflation to return to the 2%–3% target range in the latter half of 2025 and to reach the midpoint by 2026.

During her subsequent press conference, Governor Michele Bullock maintained a balanced tone. Regarding rates, she mentioned that "we might have to raise, we might not," indicating the board's contemplation of rate hikes at this meeting.

Currently, the swaps market has largely discounted any further rate hikes over the next six months, with a decrease priced in for the subsequent six months.

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

With the Fed's commitment to tightening monetary policy and the potential for RBA easing later this year, sustained gains in AUD/USD are anticipated to be limited.

AUD/USD daily chart

AUD/USD short-term technical outlook

Extra gains may lead the AUD/USD to retest its May high of 0.6647 (May 3), which comes slightly ahead of the March top of 0.6667 (March 8) and the December 2023 peak of 0.6871.

Meanwhile, if sellers regain control, spot may challenge the critical 200-day SMA at 0.6519 before hitting the May low of 0.6465 and the 2024 bottom of 0.6362 (April 19).

Looking at the bigger picture, while above the important 200-day SMA, further gains should remain in the pipeline.

On the four-hour chart, the selling impetus appears to have met some decent contention near the 55-SMA around 0.6560. Further downside targets the 200-SMA at 0.6522 ahead of the 100-SMA at 0.6508. On the upside, there is initial resistance at 0.6647, just ahead of 0.6667. In addition, the RSI bounced to around 48.