- AUD/USD came under renewed downward pressure at 0.6650.
- Weaker commodity prices hurt the Australian dollar on Wednesday.
- Next up in Down Under is the labor market report on Thursday.
AUD/USD’s uptrend so far appears to have struggled around the 0.6650 zone, a region that also coincides with the temporary 55-day SMA and is close to the 61.8% Fibo retracement of the sharp July-August sell-off. Still, spot trading was on the defensive after two consecutive daily gains on Wednesday.
After breaking above the key 200-day SMA (0.6597), the outlook for AUD/USD is likely to gradually become more favorable, potentially supporting the continuation of the uptrend at least in the short term.
The pair’s decline on Wednesday came despite further losses in the US dollar and appears to have been driven solely by additional weakness in the commodities sector, where prices for copper and iron ore eased slightly. Futures for the latter fell to their lowest in over a year as disappointing credit data from China, the largest consumer, further weighed on market sentiment already hit by weaker demand and high supply.
On the monetary policy front, investor confidence in the Australian dollar was recently boosted by the Reserve Bank of Australia’s (RBA) recent decision to keep the official cash rate (OCR) at 4.35%. The RBA stressed its cautious stance and indicated that there is no rush to ease policy as domestic inflation is expected to persist. Both trimmed average inflation and headline CPI inflation are now expected to reach the midpoint of the 2-3% range in late 2026, later than the previously expected June 2026.
During her press conference, RBA Governor Michele Bullock mentioned that the board had considered a rate hike and stressed that rate cuts were not in sight as expectations of such cuts were premature.
Governor Bullock reiterated in her recent comments that the bank would not hesitate to raise interest rates if necessary to control inflation. She maintained her hawkish stance as underlying inflation remains high. She stressed the bank’s vigilance over inflation risks following the decision to keep rates unchanged. Core inflation, which was 3.9% last quarter, is expected to fall to the target range of 2% to 3% by the end of 2025.
Overall, the RBA is likely to be the last of the G10 central banks to start cutting interest rates. A possible easing of monetary policy by the Federal Reserve (Fed) in the medium term could provide support to the AUD/USD pair in the coming months, in contrast to the expected prolonged hawkish stance by the RBA.
However, the sluggish performance of the Chinese economy could hinder a sustained recovery in the Australian dollar. China continues to face challenges in the wake of the pandemic, including deflation and insufficient incentives for a strong recovery. Concerns about demand from China, the world’s second-largest economy, also emerged after the Politburo meeting, which failed to introduce concrete new stimulus measures despite promises to support the economy.
Notably, Chinese inflation data in July showed a slight increase in both monthly and annual CPI figures, and producer prices also came in slightly above estimates.
Meanwhile, non-commercial traders (speculators) remained largely net-short on the AUD, according to the CFTC’s latest report, largely due to the lack of positive signals from China. Aside from a brief two-week hiatus, net-shorts have dominated since Q2 2021.
AUD/USD daily chart
Short-term technical outlook for AUD/USD
Further gains should push AUD/USD toward the August high of 0.642 (August 14), ahead of the July high of 0.6798 (July 8) and the December high of 0.6871.
On the other hand, occasional bearish fluctuations could trigger a decline to the low of 0.6347 in 2024 (August 5) before the price slides to the low of 0.6270 in 2023 (October 26).
The four-hour chart suggests a slight loss of upside momentum for now. However, the immediate obstacle is at 0.6642, ahead of 0.6702. On the other hand, the 100-SMA at 0.6554 offers early support, followed by 0.6347. The RSI fell to around 55.
