AUD/USD Price Forecast: Consolidates above 0.7000/two-month low; bearish potential intact

AUD/USD struggles to lure buyers as fresh US strikes on Iran temper hopes for a peace deal.
Mixed inflation figures from China fail to impress AUD bulls amid reduced RBA rate hike bets.
A softer USD supports the pair amid a bearish technical setup and ahead of the US CPI report.

Haresh Menghani FXStreet

The AUD/USD pair oscillates in a narrow range during the Asian session on Wednesday and moves little following the release of mixed inflation figures from China. Spot prices currently trade around the 0.7025 region, nearly unchanged for the day, and remain within striking distance of a nearly two-month low set on Tuesday.

Renewed hostilities between the US and Iran temper hopes for a deal to end the over three-month-old war. This, in turn, weighs on investors' sentiment, which, along with diminishing odds of a rate hike by the Reserve Bank of Australia (RBA) in June, acts as a headwind for the risk-sensitive Aussie. The US Dollar (USD), on the other hand, remains on the back foot as bulls opt to wait for the release of the latest US consumer inflation figures before placing fresh bets, offering some support to the AUD/USD pair.

Meanwhile, concerns about the inflationary impact of surging global energy prices stemming from prolonged tensions in the Middle East resurfaced after data released from China showed that producer prices rose to the highest since July 2022. This reaffirms market expectations that major central banks, including the US Federal Reserve (Fed), will stick to a hawkish stance. The outlook, in turn, favors the USD bulls and suggests that the path of least resistance for the AUD/USD pair is to the downside.

From a technical perspective, this week's repeated failures near the 100-day Simple Moving Average (SMA) support-turned-resistance validate the near-term bearish outlook. Moreover, the negative Moving Average Convergence Divergence (MACD) and a Relative Strength Index near 35 suggest downside pressure is still dominating. The AUD/USD pair, however, remains marginally above the 61.8% Fibonacci retracement level of the March-May upswing, at 0.7003, warranting caution for bears.

Hence, it will be prudent to wait for a convincing break below the said pivotal support before positioning for an extension of the fall to the 78.6% retracement at 0.6929. The downward trajectory could eventually drag the AUD/USD pair to the 200-day SMA, which coincides with the March swing low, in the 0.6837–0.6834 region.

On the topside, initial resistance is seen at the 50% retracement at 0.7055, followed by the 100-day SMA at 0.7079. A sustained break above these would open the way toward the 38.2% Fibo. level at 0.7107 and then the 23.6% retracement at 0.7172, ahead of the cycle high zone near 0.7276.

(The technical analysis of this story was written with the help of an AI tool.)

AUD/USD daily chart

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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