AUD/USD Price Forecast: Faces rejection near 100-day SMA at 0.7050; bullish bias intact
- AUD/USD struggles to capitalize on a modest bullish gap opening to a fresh high since June 17.
- A goodish USD recovery from a one-and-a-half-month low exerts downward pressure on the pair.
- The setup favors bulls and supports prospects for the emergence of dip-buying at lower levels.
The AUD/USD pair faces rejection near the 100-day Simple Moving Average (SMA) and retreats slightly after hitting a fresh high since June 17, around the 0.7050 level earlier this Monday. Spot prices slide to the 0.7030-0.7025 region heading into the European session, though the downside potential seems limited amid a supportive fundamental and technical setup.
The US Dollar (USD) stages a goodish recovery from a one-and-a-half-month low, which, along with the disappointing release of China's RatingDog Manufacturing PMI, exerts some pressure on the AUD/USD pair. However, renewed hopes for a US-Iran peace deal and receding US Federal Reserve (Fed) rate hike bets, amid easing inflation fears on the back of a steep decline in oil prices, should cap the USD and help limit the downside for the currency pair.
From a technical perspective, last week's breakout through the 0.7020 barrier, representing the 38.2% Fibonacci retracement level of the May-June downfall, was seen as a key trigger for AUD/USD bulls. Moreover, momentum indicators remain supportive. In fact, the Relative Strength Index is hovering around 57, and the Moving Average Convergence Divergence (MACD) is slightly positive, hinting that buyers still control the short-term bias while facing nearby resistance.
However, the 100-day SMA at 0.7053, followed by the 50.0% retracement at 0.7069, might continue to act as immediate hurdles. A daily close above this cluster would open the way toward the 61.8% retracement at 0.7117 and then 0.7184, ahead of the cycle high near 0.7271.
On the downside, initial support aligns with the 38.2% retracement at 0.7021, with additional layers at 0.6962 and the 200-day SMA at 0.6913, while a deeper retreat would expose the structural floor around 0.6867.
AUD/USD daily chart
Australian Dollar FAQs
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.
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.
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.
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.
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.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
