AUD/USD Price Forecast: Bulls remain at the mercy of USD price dynamics, despite hawkish RBA

• AUD/USD struggles to capitalize on hawkish RBA-inspired modest intraday gains.
• Bets for a less aggressive Fed policy easing underpins the USD and caps the pair.
• Traders now look to US data ahead of the PBOC rate decision on Wednesday.

The AUD/USD pair touched a four-day peak following the release of the Reserve Bank of Australia's (RBA) November Meeting Minutes earlier this Tuesday, albeit it lacked follow-through buying. The Australian Dollar (AUD) strengthened after the minutes indicated that the board remains vigilant to upside inflation risks and believes that policy needs to remain restrictive. Adding to this, an official at the National Development and Reform Commission (NDRC) – China’s state planner – said on Tuesday that the country has ample policy room and tools to support economic recovery. The official expects China's economy to sustain recovery momentum in November and December, which, along with subdued US Dollar (USD) price action, offers some support to the currency pair. 

In the absence of any fundamental catalyst, any meaningful depreciation for the Greenback seems elusive amid expectations that US President-elect Donald Trump's touted expansionary policy will boost inflation and limit the scope for further rate cuts by the Federal Reserve (Fed). Adding to this, the recent less dovish remarks by a slew of influential FOMC members, including Fed Chair Jerome Powell, forced investors to scale back their bets for a more aggressive policy easing. Apart from this, the risk of a further escalation of geopolitical tensions, assists the USD to stall its corrective pullback from a fresh year-to-date touched last week. This, in turn, drags the AUD/USD pair back closer to the 0.6500 psychological mark during the early part of the European session. 

Moving ahead, traders look forward to the US economic docket – featuring the release of Building Permits and Housing Starts. This, along with  Kansas City President Jeffrey Schmid's scheduled speech, might influence the USD price dynamics and provide some impetus later during the North American session. The market attention will then shift to an interest rate decision by the People’s Bank of China on Wednesday, which could drive sentiment surrounding antipodean currencies, including the Aussie. In the meantime, the fundamental backdrop warrants some caution before confirming that the AUD/USD pair has bottomed out in the near term and positioning for an extension of the recent bounce from the 0.6440 area, or the lowest level since early August touched last week.

Technical Outlook

Against the backdrop of a failure near the 50-day Simple Moving Average (SMA) earlier this month, last week's breakdown below the 0.6560-0.6555 support was seen as a key trigger for bearish traders. Moreover, oscillators on the daily chart – though they have been recovering from lower levels – are holding in negative territory. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside and supports prospects for the emergence of fresh selling at higher levels. 

Hence, any subsequent move up is likely to remain capped near the aforementioned support breakpoint, now turned hurdle. Some follow-through buying, however, might prompt some short-covering move and allow the AUD/USD pair to reclaim the 0.6600 mark. The momentum could extend further, though runs the risk of fizzling out rather quickly near the very important 200-day SMA, currently pegged near the 0.6625-0.6630 region. The latter should act as a pivotal point for short-term traders.

On the flip side, weakness below the Asian session low, around the 0.6495 zone, might expose the multi-month low, around the 0.6440 region. The subsequent downfall could eventually drag the AUD/USD pair to the 0.6400 round figure en route to the YTD trough, around the 0.6350-0.6345 area touched in August.

AUD/USD daily chart