AUD/USD Forecast: Some relief could emerge with the Fed

The constant buying pressure on the US Dollar (USD) accelerated the decline of AUD/USD on Tuesday, pushing it below the key 200-day SMA (0.6557). In doing so, the door is now open to the continuation of the move south, at least in the very near term.

Back to the Greenback, its rebound was supported by the dominating risk-off tone and the sharp depreciation of the Japanese yen, which lifted USD/JPY to fresh yearly tops amidst the mixed bias in US yields across different timeframes and somewhat reduced expectations for a Federal Reserve (Fed) interest rate cut in June.

Further exacerbating the negative sentiment surrounding the Australian dollar was another vacillating session in the commodity complex, which this time saw copper prices come under pressure vs. a humble uptick in iron ore.

The economic situation in China is anticipated to have lasting effects on the AUD. While potential stimulus measures may provide temporary relief, sustained improvements in economic indicators are crucial for strengthening the Australian currency and potentially initiating a significant uptrend in AUD/USD.

The Reserve Bank of Australia (RBA) did not help the currency either after it surprised the market with a dovish stance at its event early on Tuesday. While it kept interest rates unchanged at 4.35%, in line with expectations, it unexpectedly removed its bias towards tightening. The RBA adjusted its policy guidance from suggesting that another rate hike could be possible to stating that the board is not ruling anything in or out. Consequently, the tone of the RBA statement became more cautious, highlighting that wage growth seems to have reached its peak and that household consumption remains weak due to high inflation and rising interest rates.

It's noteworthy that the RBA is still among the last G10 central banks to consider adjusting interest rates.

Considering the differing timelines for monetary policy adjustments between the RBA and the Fed, the Aussie dollar might gather momentum later in the year, potentially leading to further advances in AUD/USD. If the pair surpasses the December 2023 peak of 0.6871, it could aim for the significant milestone of 0.7000 in the near term.

AUD/USD daily chart

AUD/USD short-term technical outlook

If sellers push harder, the AUD/USD may breach the weekly low of 0.6503 (March 19). Once this region is cleared, spot might embark on a probable drop to, initially, the March low of 0.6477 (March 5), before touching the 2024 bottom of 0.6442 (February 13). Breaking below this level may result in a visit to the 2023 low of 0.6270 (October 26), followed by the round level of 0.6200 and the 2022 low of 0.6169 (October 13).

On the upside, a breakout of the March peak of 0.6667 (March 8) might target the December 2023 high of 0.6871 (December 28), seconded by monthly tops of 0.6894 (July 14) and 0.6899 (June 16), all before the critical 0.7000 level.  

On the 4-hour chart, the negative motion looks to have accelerated recently. Against that, further losses may push the pair to retest 0.6503, followed by 06477, and then 0.6442. On the other hand, the initial resistance is at the 200-SMA of 0.6541, followed by 0.6573 and the 55-SMA at 0.6591. Furthermore, the MACD sank further into the negative zone, and the RSI bounced to around 35.