- AUD/USD extended its leg lower and flirted with the 200-day SMA.
- Extra gains in the dollar kept the AUD depressed.
- The RBA is seen keeping its policy rate intact at 4.3% on Tuesday.
The intense buying pressure in the US Dollar (USD) spurred AUD/USD to accelerate its downward movement, extending the break below the critical 0.6600 support level and flirting with the key 200-day SMA around 0.6560/50 band on Monday.
Simultaneously, the Greenback’s recovery was once again bolstered by further upside in US yields across various timeframes as well as diminishing bets for an interest rate cut by the Federal Reserve (Fed) in June.
Adding to the negative sentiment surrounding the Aussie dollar was the persistent downward pressure on iron ore prices, fueled by escalating concerns regarding China and its construction and housing sectors. Iron ore prices retreated below the $110.00 mark per tonne, a level not seen since late August 2023.
The economic dynamics in China are expected to have further repercussions for the AUD. While potential stimulus measures might offer short-term relief, sustained improvements in economic indicators are crucial for bolstering the Australian currency and potentially initiating a significant upward trend in AUD/USD. Still around China, the Aussie dollar practically ignored the upbeat results from the Chinese docket published early on Monday, after Fixed Asset Investment, Retail Sales and Industrial Production all exceeded expectations. On the not-so-bright side, the Unemployment Rate ticked higher to 5.3% (from 5.2%).
In light of the upcoming Reserve Bank of Australia (RBA) meeting, the expected cautious approach of the central bank could act as an important contention zone for the AUD, as investors see the bank’s forward guidance to remain unchanged as well as its mention that further rate hikes should not be ruled out. It is worth mentioning that the RBA remains one of the last G10 central banks to consider interest rate adjustments.
Looking at the bigger picture and given the discrepancy in the timing of monetary policy adjustments between the RBA and the Fed, the Aussie dollar may gain momentum later in the year, potentially driving further advances in AUD/USD. Once surpassing the December 2023 peak of 0.6871, the pair could target the significant milestone of 0.7000 in the near future.
AUD/USD daily chart
AUD/USD short-term technical outlook
If sellers push stronger, AUD/USD may breach the important 200-day SMA in the 0.6560 region, while a loss of the region could cause the pair to fall down to the March low of 0.6477 (March 5), before reaching the 2024 low of 0.6442 (February 13). Breaking below this level might lead to a visit to the 2023 low of 0.6270 (October 26), followed by the round level of 0.6200 and the 2022 low of 0.6169 (October 13).
On the upside, a breakout of the March peak of 0.6667 (March 8) might target the December 2023 high of 0.6871 (December 28), followed by monthly tops of 0.6894 (July 14) and 0.6899 (June 16), all before the important 0.7000 barrier.
On the 4-hour chart, the downward momentum appears to have picked up pace recently. Against that, further losses may cause the pair to retest the 200-SMA at 0.6542, seconded by 06477, and finally 0.6442. On the other hand, the initial resistance is at the 55-SMA at 0.6590 followed by 0.6667 and 0.6728. Furthermore, the MACD recedes to the negative zone, and the RSI drops to the 35 area.
Read the full article here
