AUD/USD Forecast: Next stop comes at 0.6700

AUD/USD extended its recovery for the second day in a row, testing the upper-0.6600s, or multi-session tops, on the back of improved sentiment in the risk-related markets, extra weakness in the US Dollar (USD), and further adjustments to the recent RBA meeting.

The broader appetite for risk assets weighed on the Greenback once again, sponsoring the third consecutive pullback in the USD Index (DXY) amidst the absence of activity in the US markets.

Adding to gains in the Aussie dollar came minor advancements in copper and iron ore prices, both of which have maintained their consolidation so far this month.

In terms of monetary policy, the Reserve Bank of Australia (RBA), like the Fed, is among the last major central banks to adjust its stance. The RBA maintained a hawkish position on Tuesday, as expected, keeping the official cash rate (OCR) at 4.35% and indicating flexibility in its future decisions.

During the press conference, Governor Bullock confirmed that the board discussed the possibility of rate hikes while ruling out rate cuts. Furthermore, the bank remains vigilant on inflation, indicating a reluctance to ease policy unless necessary.

On the latter, the RBA emphasized that inflation remains persistently above target and introduced a new commitment to take necessary actions to bring inflation back within the target range.

Looking forward, the money markets foresee around 20 bps of easing by May 2025, with the possibility of rate hikes in August, September, and November not completely ruled out.

The divergence between potential Fed easing and the RBA's likely prolonged restrictive stance could support AUD/USD in the short term.

However, concerns about the sluggish momentum in the Chinese economy could hinder a sustainable recovery in the Australian currency as China continues to struggle post-pandemic.

AUD/USD daily chart

AUD/USD short-term technical outlook

If the current trend continues, AUD/USD may reach its May peak of 0.6714 (May 16), followed by the December 2023 high of 0.6871 and the July 2023 top of 0.6894 (July 14), all before the important 0.7000 yardstick.

On the other hand, bearish attempts may drive the pair to test the June low of 0.6574 (June 10) prior to the important 200-day SMA of 0.6546. A deeper decline could unveil a visit to the May low of 0.6465 and the 2024 bottom of 0.6362 (April 19).

In general, the uptrend should continue while AUD/USD trades above the 200-day SMA.

The 4-hour chart suggests a continuation of the positive trend in the near term. That said, the initial barrier appears at 0.6714, ahead of 0.6728 and 0.6759. Immediate support comes at 0.6574, followed by 0.6558. The RSI rose to around 67.