AUD/USD Price Forecast: Bulls remain at the mercy of USD price dynamics

• AUD/USD struggles to capitalize on the previous day’s strong rally to a two-week high.
• The Trump trade enthusiasm revives the USD demand and exerts pressure on the pair.
• The RBA’s hawkish tilt and hopes for more Chinese stimulus could support the Aussie.

The AUD/USD pair attracts fresh sellers on Friday and reverses a part of the previous day's strong move up back closer to the 100-day Simple Moving Average (SMA), around the 0.6685-0.6690 region, or over a two-week high. As investors look past the Federal Reserve's (Fed) dovish outlook, the so-called “Trump Trade” enthusiasm helps revive the US Dollar (USD) demand. This, in turn, is seen as a key factor exerting downward pressure on the currency pair as traders keenly await more cues on fiscal stimulus from China.

As was expected, the Fed lowered borrowing costs by 25 basis points (bps) on Thursday, marking a downshift from the 50 bps cut that kicked off the easing cycle in September. In the accompanying policy statement, Fed officials justified the easing mode amid the ongoing progress against inflation and signs of slowing labor market. Moreover, Fed Chair Jerome Powell failed to offer cues that the central bank may pause rate cuts in the near term. The central bank, however, acknowledged that the economy continues to expand at a solid pace.

Furthermore, investors remain hopeful that Trump's policies will spur economic growth and boost inflation. This could restrict the Fed's ability to cut rates aggressively, which, in turn, assists the USD in stalling the previous day's sharp retracement slide from a four-month top and is seen weighing on the AUD/USD pair. However, the Reserve Bank of Australia's (RBA) hawkish stance, along with signs that China's big stimulus push is helping improve business conditions, might hold back traders from placing bearish bets around the Aussie. 

In fact, the RBA earlier this week said that the monetary policy needs to remain restrictive until inflation assuredly approaches its targets and that it had not eliminated the chance of another rate hike if needed to bring inflation down. Furthermore, traders might opt to wait for China's Standing Committee of the National People's Congress (NPC) to announce details of stimulus measures. This, in turn, could provide some impetus to antipodean currencies – including the Australian Dollar (AUD) – ahead of Chinese inflation figures on Saturday. 

In the meantime, Friday's release of the Preliminary Michigan Consumer Sentiment Index and Inflation Expectations, along with the US bond yields, might influence the USD and provide some impetus to the AUD/USD pair. Nevertheless, spot prices remain on track to snap a five-week losing streak to the lowest level since August 8, around the 0.6515-0.6510 region touched on Wednesday.

Technical Outlook

From a technical perspective, failure near the 100-day SMA, along with bearish oscillators on the daily chart, suggest that the path of least resistance for the AUD/USD pair remains to the downside. That said, the 200-day SMA, currently pegged near the 0.6630 area, could protect the immediate downside ahead of the 0.6600 mark. Some follow-through selling might expose the multi-month low, around the 0.6515-0.6510 zone touched on Monday, before spot prices eventually drop to the next relevant support near the 0.6465-0.6460 region.

On the flip side, the 100-day SMA, around the 0.6690 region, might continue to act as an immediate hurdle ahead of the 0.6715-0.6820 area, or the 50-day SMA. A convincing break above the said barriers might shift the bias in favor of bulls and lift the AUD/USD pair beyond the 0.6750-0.6755 intermediate resistance, towards the 0.6800 mark. The subsequent move up will suggest that the recent downfall has run its course and pave the way for additional gains. 

AUD/USD daily chart