AUD/USD Forecast: Extra losses now look likely near term

• AUD/USD traded close to the 0.6500 region on Monday.
• Chinese concerns and weaker commodity prices weighed on AUD.
• Further pullbacks now appear on the horizon.

AUD/USD resumed its significant decline, quickly leaving behind the key 200-day SMA and extending its bearish note to the proximity of the 0.6500 neighbourhood, or two-month lows.

The ongoing monthly reversal has erased the monthly gains due to poor economic prospects from China, persistently falling commodity prices, intermittent strength of the US Dollar (USD), and the recent interest rate cut by the People’s Bank of China (PBoC).

The PBoC's unexpected rate cuts last week weakened the Chinese yuan, which negatively impacted the Australian dollar due to the country’s economic ties with China and the AUD's role as a liquid proxy for the yuan.

In the meantime, incessant weakness in copper and iron ore prices also contributed to the AUD's decline, reflecting a broader downturn in the commodity sector.

In terms of monetary policy, the Reserve Bank of Australia (RBA) maintained a hawkish stance at its latest meeting, keeping the official cash rate at 4.35% and showing flexibility for future decisions. The subsequent release of the meeting Minutes indicated that officials considered another rate hike to curb inflation but refrained, partly due to concerns about a potential sharp slowdown in the labour market.

Overall, the RBA is expected to be the last G10 central bank to begin cutting interest rates. In fact, the central bank is not in a hurry to ease policy, anticipating that it will take time for inflation to consistently fall within the 2-3% target range.

Potential easing by the Federal Reserve (Fed) in the medium term, contrasted with the RBA's likely prolonged restrictive stance, could support AUD/USD in the coming months.

However, slow momentum in the Chinese economy might hinder a sustained recovery of the Australian dollar as China continues to face post-pandemic challenges, deflation, and insufficient stimulus for a convincing recovery.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further losses in the AUD/USD might find support at the July low of 0.6513 (July 25). Following this, the May low of 0.6465 arrives before the 2024 bottom of 0.6362 (April 19).

Occasional bullish surges, on the other hand, may encounter early resistance at the critical 200-day SMA of 0.6587, seconded by the temporary 100-day and 55-day SMAs at 0.6604 and 0.6659, respectively, before the July high of 0.6798 (July 8) and the December top of 0.6871.

Overall, further retracements in AUD/USD are likely while below the 200-day SMA.

The four-hour chart reveals some consolidative move in the offing. Against this, immediate support appears at 0.6513, prior to 0.6465. On the plus side, the initial obstacle is 0.6610 ahead of the 200-SMA at 0.6672 and 0.6754. The RSI rose to around 38.