AUD/USD Forecast: Tests 20-day SMA ahead of the RBA decision

Matías Salord FXStreet

AUD/USD Current Price: 0.6621

The RBA will have its monetary policy meeting on Tuesday.
The US Dollar weakened after the release of US economic data.
The AUD/USD is testing the 20-day SMA, facing resistance below 0.6640.

The AUD/USD pair rose for the third consecutive day on Monday but could not break above last week's highs. The pair rebounded at 0.6580 and climbed to the 0.6640 area, boosted by a weaker US Dollar amid mixed market sentiment. The focus now turns to the Reserve Bank of Australia's (RBA) decision.

The market consensus is for the Reserve Bank of Australia to keep interest rates unchanged. However, many analysts see a higher likelihood of a 25 basis point rate hike. The latest Australian Consumer Price Index (CPI) report and labor market data have opened the door to more action from the RBA.

The central bank surprised with a rate hike at the May meeting. If the RBA keeps rates unchanged, the Australian Dollar could weaken after the decision, even if, as expected, the central bank keeps the bias toward more tightening. A “dovish hike” (unlikely scenario) could also be negative for the Aussie. Prior to the decision, Australia will report Q1 Current Account data. On Wednesday, GDP data is due.

A weaker US Dollar drove the AUD/USD rally on Monday. The ISM Services PMI report showed numbers below expectations in all components, which pushed US Treasury yields lower and weighed on the Greenback. This data followed an upbeat jobs report on Friday.

There is growing divergence regarding the outlook for the Fed's monetary policy. Some see the year-end rate below the 5.00%-5.25% range, and others above that level. Next week, the Federal Open Market Committee (FOMC) meets, and according to the CME Fed Watch Tool, the interest rate market sees an 80% probability of a pause.

AUD/USD short-term technical outlook

The AUD/USD continues to exhibit a bullish tone in the short term, but it is currently facing resistance at the 0.6640 area and the 20-day Simple Moving Average (SMA) at 0.6620. A firm break above 0.6640 could open the doors to more gains, with a potential target of 0.6675.

On the 4-hour chart, the 20-period SMA is at 0.6580, around a horizontal support level. A break below this level would weaken the outlook for the Aussie, favoring an extension to 0.6550 initially. Below that, the next support stands at 0.6510. Technical indicators on the 4-hour chart are currently near extreme overbought levels, which could suggest further consolidation around 0.6620 over the next few hours.

Support levels: 0.6580 0.6540 0.6510

Resistance levels: 0.6640 0.6680 0.6710

View Live Chart for the AUD/USD

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Author

Matías Salord

FXStreet

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

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