AUD/USD Price Forecast: First stumbling block emerges at 0.6760

AUD/USD extended its rejection from recent multi-week tops around 0.6760 (August 21), although some initial contention seems to have turned up around the 0.6700 region on Thursday.

The pair’s ongoing upward movement is supported by the recent breakout of the always-relevant 200-day SMA at 0.6605, which has shifted the outlook for AUD/USD to a more positive one, reinforcing the potential for a continued uptrend in the near term.

The multi-day rally has encountered a tough barrier around 0.6760 so far. It is worth recalling that the ongoing monthly rebound has been largely driven by a persistent weakening of the US Dollar (USD) and a broader recovery in risk assets. On Thursday, renewed weakness in copper prices contrasted with the slight recovery in iron ore prices, although the latter is expected to remain under the microscope in light of the absence of positive developments from China and, mainly, its housing sector.

Monetary policy developments have also bolstered the Australian dollar, with the Reserve Bank of Australia (RBA) recently maintaining the official cash rate (OCR) at 4.35%. The RBA has adopted a cautious approach, indicating no immediate plans to ease policy due to persistent domestic inflation. Both trimmed-mean and headline CPI inflation are now expected to reach the midpoint of the 2-3% target range by late 2026, later than previously anticipated.

In a subsequent speech, Governor Michelle Bullock reaffirmed the RBA’s readiness to raise interest rates if necessary to control inflation, maintaining a hawkish stance in light of elevated underlying inflation. She stressed the bank’s vigilance regarding inflation risks following the decision to keep rates unchanged. Core inflation, which stood at 3.9% last quarter, is expected to fall within the 2-3% target range by late 2025.

The bullish sentiment around AUD has also been supported by the hawkish tone from the RBA Minutes earlier in the week, where members discussed whether to raise the cash rate target or keep it steady. The case for an increase was bolstered by ongoing underlying inflation and the need to counteract market expectations of multiple rate cuts later in 2024. Ultimately, members decided that maintaining the current cash rate target was the better course. They also agreed that a rate cut in the near term is unlikely, though future changes to the rate target remain a possibility.

Overall, the RBA is expected to be the last among the G10 central banks to begin cutting interest rates. The potential for Federal Reserve easing in the short term, contrasted with the RBA’s expected prolonged restrictive stance, should support the case for a stronger AUD/USD in the coming months. Currently, swaps markets anticipate a 25 bps rate cut from the RBA towards the end of the year, although such a move appears more likely in Q1 2025.

However, a slow recovery in the Chinese economy may limit the Australian dollar’s rebound. China continues to face post-pandemic challenges, such as deflation and insufficient stimulus. Concerns about demand from China, the world’s second-largest economy, were heightened after the Politburo meeting, which, despite promises of support, did not introduce specific new stimulus measures.

Meanwhile, the latest CFTC report for the week ending August 13 shows that non-commercial traders (speculators) remain largely net-short on the AUD, primarily due to the lack of positive developments from China. Net shorts have dominated since Q2 2021, with only a brief two-week interruption.

On the domestic front, flash Judo Bank Manufacturing and Services PMIs ticked higher to 48.7 and 52.2, respectively, in August, indicating another reason propping up AUD.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further gains should propel the AUD/USD to its August peak of 0.6761 (August 21), ahead of the July high of 0.6798 (July 8) and the December 2023 top of 0.6871 (December 28).

Occasional bearish efforts, on the other hand, may result in an initial drop to the significant 200-day SMA of 0.6605, ahead of the 2024 bottom of 0.6347 (August 5) and the 2023 low of 0.6270 (October 26).

The four-hour chart suggests some loss of upside impulse as of late. However, the immediate resistance is 0.6761, which comes before 0.6798. On the other hand, the 200-SMA at 0.6636 provides early support, followed by 0.6560. The RSI dropped to about 50.