AUD/USD Forecast: The RBA propped up the recovery… will it last?

• AUD/USD climbed to three-day highs near 0.6660.
• The RBA kept its policy rate unchanged, as widely expected.
• The RBA delivered a hawkish tone at its meeting on Tuesday.

AUD/USD regained its smile and advanced well past the 0.6600 hurdle, or three-day highs, on the back of the improved sentiment in the risk complex, the offered stance in the US Dollar (USD), and the hawkish message from the RBA at its event early on Tuesday.

In fact, the firm appetite for risky assets weighed on the greenback, sending the USD Index (DXY) lower, while declining US yields across the spectrum also added to the sour sentiment.

Meanwhile, the Aussie dollar seemed to have ignored the marginal developments around both copper and iron ore prices, which remained within their multi-session consolidative theme.

Regarding monetary policy, the Reserve Bank of Australia (RBA), similar to the Fed, is one of the last major central banks to adjust its stance.

Indeed, the RBA delivered a hawkish hold, as anticipated, keeping its official cash rate (OCR) at 4.35% and stating that “the Board is not ruling anything in or out.”

During her press conference, Governor Bullock confirmed that the Board discussed the option of raising rates while ruling out the consideration of a rate cut. She stated that the RBA remains concerned about inflation, indicating that the bar for easing policy remains high.

The RBA noted that "inflation remains above target and is proving persistent" and reiterated that "the Board expects that it will be some time yet before inflation is sustainably in the target range." Additionally, the RBA introduced a new statement, asserting it "will do what is necessary" to return inflation to target.

So far, money markets see nearly 50 bps of easing by December 2025, while a rate hike in August and September are not entirely ruled out.

Considering the potential for the Fed to ease its monetary policy later in the year versus the likelihood that the RBA will maintain its restrictive stance for an extended period, AUD/USD could see potential gains in the short term.

Playing against a sustainable recovery in the Australian currency, on the other hand, creeps in the sluggish momentum in the Chinese economy, which has so far disappointed everybody amidst the persistent failure to regain credible traction in the aftermath of the pandemic.  

AUD/USD daily chart

AUD/USD short-term technical outlook

If the upward trend continues, AUD/USD may confront its May peak of 0.6714 (May 16), seconded by the December 2023 high of 0.6871, and the July 2023 top of 0.6894 (July 14), all before the critical 0.7000 barrier.

On the other side, periodic bearish efforts may cause the pair to test the critical 200-day SMA of 0.6545, which comes prior to the May low of 0.6465 and the 2024 bottom of 0.6362 (April 19).

In general, the upward trend should continue until AUD/USD breaches the 200-day SMA.

The 4-hour chart shows a resumption of the bullish bias. That said, initial hurdle emerges at 0.6714, ahead of 0.6728 and 0.6759. On the flip side, immediate support comes at 0.6574 seconded by 0.6558. The RSI surged over 62.