AUD/USD Price Forecast: The 0.6400 region holds the downside…for now

• AUD/USD dropped to four-month lows around the 0.6400 zone.
• The US Dollar traded slightly on the defensive on poor data releases.
• The Australian GDP figures disappointed expectations in Q3.

The US Dollar (USD) faced renewed downside pressure on Wednesday, adding to Tuesday’s pullback and slipping closer to the key 106.00 support level once again as tracked by the Dollar Index (DXY). 

In the same line, the Australian Dollar (AUD) faced a strong bout of selling pressure, hitting four-month lows near the 0.6400 neighbourhood.

Why the Aussie is Down

The pair’s pronounced retracement came in response to discouraging GDP data during the July-September period. On this, the GDP Growth Rate expanded by 0.3% QoQ and 0.8% YoY, both prints coming in short of previous estimates.

In addition, key Australian exports like copper prices gave away part of Tuesday’s strong gains, while iron ore continued its gradual rebound. This upward push came despite ongoing concerns about China’s economic struggles.

The Chinese Yuan has been under pressure, dragged down by weak domestic data and fresh tariff threats from the US. While Australia’s economy remains heavily tied to China’s fortunes, the Aussie managed to somewhat shrug off these worries for now. Still, doubts linger over whether China’s stimulus measures will deliver enough of a boost to stabilise its slowing economy.

RBA’s Steady Hand

The Reserve Bank of Australia (RBA) kept interest rates unchanged at 4.35% earlier this month, adopting a wait-and-see approach. While controlling inflation remains its top priority, policymakers are clearly wary of slowing economic growth. RBA Governor Michele Bullock reiterated the need to keep policy tight until inflation shows sustained signs of cooling.

Australia’s inflation story remains mixed. October’s CPI Indicator held steady at 2.1%, but the RBA has cautioned against drawing conclusions from a single data point. For now, any talk of rate cuts remains premature.

What’s Next for AUD/USD?

The Aussie faces a mixed bag of risks and opportunities in the months ahead. A pivot from the Federal Reserve (Fed) toward rate cuts could give the currency a boost. However, persistent US inflation and the ongoing strength of the Greenback remain headwinds. 

China’s economic slowdown continues to cast a long shadow over Australia’s growth prospects. That said, there are some encouraging signs: the country’s labour market remains resilient, with unemployment steady at 4.1% and 16,000 new jobs added in October.

Looking ahead, the RBA may consider rate cuts in Q2 2025, provided inflation continues to ease. For now, policymakers remain focused on ensuring inflation is firmly under control before loosening monetary policy.

Key Data to Watch

Traders should keep an eye on several important data releases this week: Balance of Trade figures on Thursday and Home Loans data on Friday. 

AUD/USD daily chart

Technical Outlook for AUD/USD

From a technical perspective, AUD/USD faces immediate resistance at 0.6549, the weekly high from November 25. Further upside could target the 200-day Simple Moving Average (SMA) at 0.6626, with November’s peak of 0.6687 offering a longer-term hurdle. 

On the downside, support sits at 0.6399, the December low, followed by a more significant level at 0.6347, the 2024 low from August 5. These levels may provide a safety net if bearish sentiment picks up.

Momentum indicators suggest the pair is facing renewed downward pressure. The Relative Strength Index (RSI) has softened to 39, while the Average Directional Index (ADX) indicates a weak trend with a reading of 20.

Bottom Line

AUD/USD remains caught in the crossfire of global and domestic forces, with sentiment fragile at best. While there are opportunities for recovery, much depends on upcoming data and developments in the US and China. For now, caution remains the watchword for traders.