AUD/USD Price Forecast: Next target comes at 0.7000

AUD/USD, along with most of the risk asset complex, extended its march north at the beginning of the week, climbing to as high as the 0.6940-0.6945 band to print new 2024 highs.

This strong recovery was driven by the recently announced stimulus package aimed at sparking the long-waited recovery of the Chinese economy in the aftermath of the COVID pandemic.

In a direct impact of Chinese stimulus measures, and in tandem with the Australian dollar's upward movement, copper prices rose to levels last seen in July, nearing $4.70 per ounce, while iron ore prices jumped to the boundaries of $115 per metric tonne for the first time since June. This strong bounce in commodity prices, however, fizzled out towards the end of the day.

The pair’s uptick, in addition, managed to by-pass the US Dollar’s promising start to the new trading week.

Around monetary policy, the Reserve Bank of Australia (RBA) held interest rates steady at 4.35% at its gathering on September 24, as widely expected, maintaining a neutral stance. The bank emphasized that it was "not ruling anything in or out" but cautioned that "it will be some time yet before inflation is sustainably in the target range," underscoring the need to remain vigilant to potential inflation risks.

However, during her post-meeting press conference, Governor Michele Bullock softened the hawkish tone, noting that the Board “didn’t explicitly consider a rate hike this time.”

Currently, markets are pricing with a 55% probability of a 25 basis point rate cut by the end of the year.

Moreover, the RBA is likely to be among the last of the G10 central banks to begin cutting rates, with expectations that it will join the global easing cycle later this year due to weak underlying economic activity, which is expected to reduce inflationary pressures.

Looking ahead, with the Federal Reserve's anticipated rate cuts largely factored in and the RBA likely to maintain its restrictive stance for some time, the AUD/USD could experience further gains later this year. However, uncertainty persists regarding the Chinese economy and the actual implementation of the recently announced stimulus measures.

News from the CFTC Positioning report saw speculative net shorts in AUD shrink to three-week lows around 11.2K contracts amidst a modest uptick in open interest for the week ending September 24. During that period, AUD/USD maintained a constructive outlook following the weaker Greenback and expectations of a cautious message from the RBA at its meeting.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further gains should motivate AUD/USD to test its 2024 high of 0.6941 (September 30) before hitting the critical 0.7000 level.

Bears, on the other side, may initially drive the pair to its September low of 0.6622 (September 11), which is supported by the key 200-day SMA (0.6626), all before the 2024 bottom of 0.6347 (August 5).

The four-hour chart shows a firm upside momentum. Having said that, the initial resistance is 0.6941, which precedes 0.7024. On the downside, first support is around 0.6867, ahead of the 55-SMA at 0.6842 and 0.6817. The RSI increased over the 65 level.