AUD/USD Forecast: The 0.6600 region holds the downside… for now

A lacklustre rebound in the US Dollar (USD) did not prevent AUD/USD from leaving behind part of the recent three-day weakness and printing modest gains north of the 0.6600 barrier on Thursday.

In fact, the Greenback attracted fresh buying interest in response to firm preliminary PMIs for the month of May, while investors continued to factor in expectations that the Federal Reserve (Fed) might start its easing programme later this year, potentially at the September meeting.

This sentiment remained bolstered by the cautious tone of many Fed officials observed earlier in the week, who emphasized that more evidence of inflation moving towards the Fed's target is needed before considering rate reductions.

Domestically, the Australian Dollar managed to by-pass further selling pressure around copper prices, while iron ore prices clocked humble gains.

On the monetary policy front, the publication of the Reserve Bank of Australia’s (RBA) Minutes of its May meeting showed members discussing interest rate hikes, which eventually positioned the central bank to be one of the last major lenders to modify its monetary stance along with the Fed. Futures markets now see

It is worth noting that the RBA kept its interest rate steady at 4.35% this month, adopting a neutral stance and signalling flexibility. The RBA's economic projections indicated that inflation would remain high until the second quarter of 2025, driven by service price inflation, before returning to the 2%–3% target range by late 2025 and reaching the midpoint by 2026. Investors currently expect the RBA to maintain its Official Cash Rate (OCR) unchanged at its June 18 meeting, while no rate cuts are forecast this year so far.

Given the Fed's commitment to monetary policy tightening and the potential for the RBA to maintain its restrictive stance for longer, extra consolidation in AUD/USD should not be ruled out in the next few months.

In Oz, Consumer Inflation Expectations rose by 4.1% in May according to the Melbourne Institute.

AUD/USD daily chart

AUD/USD short-term technical outlook

Extra gains may allow the AUD/USD to challenge the May high of 0.6714 (May 16) before aiming for the December 2023 top of 0.6871 and the July 2023 peak of 0.6894 (July 14), all ahead of the critical 0.7000 level.

Meanwhile, bearish attempts may push the pair to the intermediate 100-day and 55-day SMAs in the 0.6560 range, followed by the key 200-day SMA of 0.6526, before sliding to the May low of 0.6465 and the 2024 bottom of 0.6362 (April 19).

Looking at the larger picture, more gains are likely as long as the price stays above the 200-day SMA.

On the four-hour chart, selling momentum seems to have met some contention near 0.6600. On the upside, an initial hurdle aligns at 0.6685 ahead of 0.6709 and 0.6714. On the flip side, 0.6607 offers immediate support, prior to 0.6570 and the 200-SMA at 0.6557. The RSI dropped to about 39.