AUD/USD Forecast: Outlook remains bearish ahead of the RBA

• AUD/USD resumed its multi-session lows and retested the 0.6500 region.
• The RBA is expected to keep rates unchanged at 4.35% next week.
• Australia’s trade surplus widened to A$5.589B in June.

AUD/USD resumed its decline and rapidly faded Wednesday’s small advance, receding once again to the proximity of the key 0.6500 region, or two-month lows.

The Aussie dollar, in the meantime, maintained its trade below the critical 200-day SMA vs. the Greenback, remaining vulnerable to further losses at least in the short-term horizon.

The current marked retracement in the pair came in response to the strong rebound in the US Dollar (USD), which managed to set aside some of the post-FOMC weakness. Contributing to the pair’s monthly reversal also emerged discouraging economic prospects from China, the intense sell-off in commodity prices, and a recent interest rate cut by the People’s Bank of China (PBoC).

Regarding the latter, the PBoC's recent rate cut weakened the Chinese yuan, which negatively impacted the Australian dollar due to Australia's economic ties with China and the AUD's role as a liquid proxy for the yuan.

Still on the negatives for the Australian dollar, the persistent weakness in iron ore prices saw a lacklustre rebound on Thursday, although it remained subdued around the $100 mark per tonne, while copper prices reversed two daily gains in a row and retreated strongly on Thursday.

Regarding monetary policy, recently published inflation figures in Australia have diminished the likelihood of further tightening by the Reserve Bank of Australia (RBA), as previously projected by market participants. Consequently, the chances of the central bank maintaining the official cash rate at 4.35% at its upcoming meeting have increased, with the broader expectation being that the bank will keep its rates unchanged for the remainder of the year.

Overall, the RBA is anticipated to be the last G10 central bank to start cutting interest rates. The central bank is not in a hurry to ease policy, expecting 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 impede a sustained recovery of the Australian dollar as China continues to face post-pandemic challenges, deflation, and insufficient stimulus for a convincing recovery. Concerns about demand from China, the world's second-largest economy, also emerged following the country's Politburo meeting, where, despite pledges to support the economy, no specific new stimulus measures were announced.

Data-wise, in Oz, the trade surplus widened to A$5.589B in June and the final Judo Bank Manufacturing PMI improved to 47.5 in July.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further losses in the AUD/USD may find first support at the July low of 0.6479 (July 31), followed by the May low of 0.6465 and the 2024 bottom of 0.6362 (April 19).

Bullish attempts, on the other hand, may face first resistance at the critical 200-day SMA of 0.6590, seconded by the temporary 100-day and 55-day SMAs of 0.6602 and 0.6652, respectively, before the July top of 0.6798 (July 8) and the December peak of 0.6871.

Overall, more retracements in the AUD/USD are expected as the pair stays below the 200-day SMA.

The four-hour chart shows some acceleration of the downward bias. That said, immediate support is at 0.6479, prior to 0.6465. On the plus side, the initial barrier is at the 55-SMA of 0.6573 seconded by 0.6610 and the 200-SMA of 0.6663. The RSI hovered around 43.