AUD/USD Price Forecast: Rally faces the next stop at 0.6800

AUD/USD extended its bullish impulse for the fifth consecutive day, successfully revisiting the 0.6750 region and clinching new five-week highs on Wednesday.

In the meantime, the ongoing leg higher remains underpinned by the recent break above the critical 200-day SMA at 0.6604, which shifted the outlook for AUD/USD to a constructive one, thus supporting a continuation of the uptrend in the near term.

This multi-day rebound was largely fuelled by a further decline in the US Dollar (USD) and a broader recovery in risk assets, despite some corrective moves in commodity prices, such as a slight bounce in copper prices alongside a humble retracement in iron ore.

On the monetary policy front, the Australian dollar has recently gained support from the Reserve Bank of Australia’s (RBA) decision to keep the official cash rate (OCR) steady at 4.35%. The RBA has taken a cautious stance, 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% range by late 2026, later than previously projected.

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 high underlying inflation. She emphasized the bank’s vigilance regarding inflation risks following the decision to keep rates unchanged. Core inflation, which was 3.9% last quarter, is expected to fall within the 2-3% target range by late 2025.

The ongoing bid bias around AUD was also propped up by the hawkish tilt from the RBA Minutes, where the bank indicated that members debated whether to increase the cash rate target or keep it steady. The argument for raising rates was supported by ongoing underlying inflation and the need to counteract market expectations of multiple rate cuts later in 2024. However, members ultimately decided that maintaining the current cash rate target was the stronger position. They also agreed that a reduction in the cash rate target was unlikely in the near term, though future changes to the rate target could not be definitively ruled out.

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 medium term, contrasted with the RBA’s expected prolonged restrictive stance, could support AUD/USD in the coming months. Currently, the swaps markets anticipate the central bank cutting its rates by 25 bps at some point towards the end of the year.

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 also heightened after the Politburo meeting, which, despite promises of support, did not introduce specific new stimulus measures.

Meanwhile, according to the latest CFTC report for the week ending August 13, 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 calendar, the Leading Index came in flat in July vs. the previous month, according to Westpac.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further advances should take the AUD/USD to its August high of 0.6756 (August 21), prior to the July top of 0.6798 (July 8) and the December peak of 0.6871.

Occasional bearish attempts, on the other hand, may cause an initial decline to the important 200-day SMA of 0.6604 ahead of the 2024 bottom of 0.6347 (August 5) and the 2023 low of 0.6270 (October 26).

The four-hour chart indicates that the pair might have hit a plateau around 0.6750. That said, the immediate hurdle is at 0.6756, before 0.6798. On the other hand, the 200-SMA around 0.6636 offers early support, followed by 0.6560. The RSI rose to roughly 71.