AUD/USD Price Forecast: Consolidates above 0.7050; 100-day SMA holds the key ahead of Fed

AUD/USD remains on the back foot for the second straight day, though it lacks follow-through.
The RBA’s hawkish tilt supports the Aussie, while the US-Iran peace deal undermines the USD.
Traders seem hesitant ahead of the crucial FOMC rate decision amid a bearish technical setup.

Haresh Menghani FXStreet

The AUD/USD pair trades with a negative bias for the second straight day, though it lacks bearish conviction and holds above the 0.7050 level through the Asian session on Wednesday amid mixed cues.

The Reserve Bank of Australia (RBA) maintained a hawkish hold on Tuesday and warned that further rate increases are possible if inflation remains stubbornly elevated, which acts as a tailwind for the Australian Dollar (AUD). Furthermore, an interim US-Iran peace agreement undermines the safe-haven US Dollar (USD) and supports the AUD/USD pair. Traders, however, seem hesitant and opt to wait for the highly anticipated FOMC policy decision before placing fresh directional bets.

The AUD/USD pair keeps a bearish near-term tone 0.7085-0.7090 confluence – comprising the 100-day Simple Moving Average (SMA) and the 38.2% Fibonacci retracement of the May-June downfall. Adding to this, momentum oscillators hint that a short-term downward trend is still in play. The Relative Strength Index (RSI) is near 43, while the Moving Average Convergence Divergence (MACD) line remains below zero and the signal line, with the histogram remaining slightly negative.

On the topside, the immediate hurdle is clustered around the 0.7085-0.7090 confluence, with further barriers seen at the 50% level at 0.7124 and the 61.8% retracement at 0.7159. A sustained break above these would be needed to ease the current bearish pressure and expose the 78.6% retracement at 0.7209 and the swing high near 0.7272. On the downside, initial support is aligned with the 23.6% Fibo. at 0.7046, ahead of the monthly low near 0.6976, where a break would reinforce the broader decline.

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

AUD/USD daily chart

RBA FAQs

What is the Reserve Bank of Australia and how does it influence the Australian Dollar?

The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.

How does inflation data impact the value of the Australian Dollar?

While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.

How does economic data influence the value of the Australian Dollar?

Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.

What is Quantitative Easing (QE) and how does it affect the Australian Dollar?

Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.

What is Quantitative tightening (QT) and how does it affect the Australian Dollar?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.

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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