AUD/USD Price Forecast: A visit to 0.6600 should not be ruled out

• AUD/USD extended its strong bearish move to the vicinity of 0.6620.
• The US Dollar kept its firm advance and rose to fresh three-month highs.
• The pair’s decline put the key 200-day SMA to the test.

AUD/USD found renewed selling interest on Wednesday, rapidly fading Tuesday’s bullish attempt and receding to new lows near 0.6630. This strong drop also challenged the critical 200-day SMA.

The resurgence of the negative momentum in the Australian dollar occurred on the back of the continued strengthening of the US dollar, which has been gaining traction almost uninterruptedly since the beginning of the month, as well as ongoing concerns about the effectiveness of China’s latest stimulus measures.

The Aussie was further impacted by a marked pullback in copper prices vs. slight gains in iron ore prices, all reflecting some optimism surrounding China’s economic stimulus plans.

On the monetary front, the Reserve Bank of Australia (RBA) kept its cash rate steady at 4.35% during its September meeting. While Governor Michele Bullock acknowledged inflation risks, she suggested that a rate hike was unlikely in the near future.

Minutes from the RBA’s meeting later revealed a more dovish tone compared to August, indicating that interest rates are likely to remain stable for some time. Current market sentiment points to a 50% chance of a 25 basis point rate cut by year-end, with the RBA expected to be one of the last G10 central banks to lower rates in response to slowing economic growth and moderating inflation.

Additionally, Deputy Governor Hauser cautioned earlier in the week that expectations for RBA easing might be overestimated, warning that Australian rates may not fall as much or as quickly as other central banks as inflation remains "too high." Hauser noted that most RBA models place the neutral rate between 3-4%, suggesting that the current policy rate of 4.35% is not overly restrictive.

While potential rate cuts from the Federal Reserve later this year could provide some support for the AUD/USD, uncertainties surrounding China’s economic outlook remain a challenge.

In terms of positioning, speculators have remained net long on the Australian dollar for the third consecutive week, despite a slight decrease in open interest. These positions are likely to be tested in the coming weeks depending on the progress of China’s stimulus efforts.

Looking ahead, attention will shift to the release of Australia’s preliminary Judo Bank Manufacturing and Services PMIs next week, which will be closely watched.

AUD/USD daily chart

AUD/USD short-term technical outlook

Extra losses might send the AUD/USD to its October low of 0.6624 (October 23), which coincides with the September low. The loss of the later could pave the way for a deeper move to the 2024 bottom of 0.6347 (August 5).

On the plus side, there is an interim hurdle at the 55-day SMNA of 0.6738 prior to the 2024 high of 0.6942 (September 30), and the critical 0.7000 barrier.

The four-hour chart suggests an acceleration of the bearish leg. That said, initial support is at 0.6624, followed by 0.6622 and 0.6560. On the upside, the initial resistance level is the 55-SMA at 0.6698, seconded by 0.6723 and the 200-SMA at 0.6763. The RSI decreased to about 30.