AUD/USD Forecast: The 200-day SMA holds the downside so far

AUD/USD halted its recovery after two straight advances in a row, driven by improved sentiment in the US Dollar (USD) and a broad-based risk-off sentiment dominating the FX world.

On the back of the latter, the USD Index (DXY) climbed to three-day highs north of 105.60, helped by higher US yields despite soft prints from the US calendar and persistent talk regarding a potential rate cut by the Fed later in the year.

Contributing to the daily losses in the Aussie dollar were the minor increases in copper prices, while iron ore prices remained within a consolidative range.

Regarding monetary policy, the Reserve Bank of Australia (RBA), like the Fed, is one of the last major central banks to adjust its stance. On Tuesday, as expected, the RBA maintained a hawkish position, keeping the official cash rate (OCR) at 4.35% and indicating flexibility in future decisions.

During the press conference, Governor Bullock confirmed that the board discussed the possibility of rate hikes while ruling out rate cuts. Furthermore, the bank remains vigilant on inflation, showing reluctance to ease policy unless necessary. The central bank emphasized that inflation remains persistently above target and reiterated its commitment to take necessary actions to bring inflation back within the target range.

Looking ahead, money markets anticipate around 28 bps of easing by July 2025, with potential rate hikes in August, September, and November not entirely dismissed.

The divergence between potential Fed easing and the RBA's likely prolonged restrictive stance could support AUD/USD for the time being.

However, concerns about the sluggish momentum in the Chinese economy could impede a sustainable recovery in the Australian currency as China continues to struggle in the post-pandemic era.  

AUD/USD daily chart

AUD/USD short-term technical outlook

If bulls regain the initiative, AUD/USD may hit its May peak of 0.6714 (May 16), followed by the December 2023 high of 0.6871 and the July 2023 top of 0.6894 (July 14), all before the key 0.7000 level.

Bearish efforts, on the other hand, may push the pair lower, initially testing the June low of 0.6574 (June 10) before the key 200-day SMA of 0.6547. A further slide might result in a return to the May low of 0.6465 and the 2024 bottom of 0.6362 (April 19).

In general, the uptrend should continue as long as the AUD/USD remains above the 200-day SMA.

The 4-hour chart implies some loss of upside impetus so far. However, the initial barrier looks to be 0.6714, ahead of 0.6728 and 0.6759. Immediate support, on the other hand, is at 0.6574, followed by 0.6558. The RSI tumbled to around 53.