AUD/USD Price Forecast: Strong contention remains around 0.6700

AUD/USD encountered extra selling pressure on Tuesday, testing the 0.6700 support level once again. This key area remains bolstered by the provisional 100-day SMA.

The continuing bearish momentum for the Australian Dollar came on the back of an irresolute price action in the US Dollar (USD). Additionally, scepticism surrounding China’s latest stimulus measures contributed to a cautious mood among traders.

The Australian Dollar also faced downward pressure from a decline in copper prices, while iron ore prices remained mostly unchanged from Monday’s closing level, all amidst ongoing doubts about the effectiveness of China's stimulus efforts.

Still around China, deflationary concerns deepened in September, with official data highlighting the country's economic struggles. Over the weekend, a press conference left investors uncertain about the scale and impact of any forthcoming stimulus initiatives aimed at revitalizing the economy.

In terms of monetary policy, the Reserve Bank of Australia (RBA) kept its cash rate steady at 4.35% in its September meeting. Although the RBA recognized inflationary risks, Governor Michele Bullock stressed that a rate hike is not currently under consideration.

The release of the RBA’s meeting minutes indicated a shift toward a more dovish stance, walking back the guidance from August that suggested rates would remain stable in the near term.

Market sentiment currently reflects a 55% probability of a 25 basis point rate cut by year-end, with the RBA expected to be among the last G10 central banks to reduce rates, likely responding to slowing economic growth and easing inflation pressures.

While the potential for future rate cuts by the Federal Reserve might help AUD/USD rebound later this year, uncertainties surrounding China’s economic outlook and stimulus measures remain a significant challenge.

On the positioning front, the latest CFTC Positioning Report revealed that speculative net long positions rose to levels not seen since mid-December 2017, reaching approximately 33.4K contracts in the week ending October 8.

Next on tap in Oz will be the publication of the Leading Index gauged by Westpac, along with the speech of the RBA’s Hunter.

AUD/USD daily chart

AUD/USD short-term technical outlook

Extra losses might push the AUD/USD down to its October bottom of 0.6699 (October 10), ahead of the September low of 0.6622 (September 11), which is still supported by the significant 200-day SMA.

On the plus side, the first challenge comes at the 2024 high of 0.6942 (September 30), which precedes the key 0.7000 milestone.

The four-hour chart shows a return of the consolidative mentality. Having stated that, the initial support is 0.6699, followed by 0.6622. On the upside, initial resistance aligns at 0.6758 prior to the 200-SMA at 0.6775 and the 100-SMA at 0.6816. The RSI dropped to around 38.