AUD/USD Price Forecast: Decent contention emerges around 0.6650

Following a negative start to the new trading week, AUD/USD met renewed buying interest on Tuesday, managing to climb to the boundaries of 0.6700 the figure after an early drop to the mid-0.6600s.

The upbeat tone in the Australian Dollar came despite further advance in the US Dollar (USD), which has been gaining momentum since the beginning of the month, alongside lingering concerns about the effectiveness of China’s recent stimulus measures.

The Aussie’s strength was further bolstered by a tepid recovery in copper and iron ore prices. This price action reflected some hopes regarding the implementation of China’s economic stimulus efforts.

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

The RBA’s meeting Minutes later revealed a more dovish tone compared to August, suggesting that interest rates are expected to remain stable for the foreseeable future. Market sentiment currently indicates a 50% chance of a 25-basis-point rate cut by year-end, with the RBA likely to be one of the last G10 central banks to lower rates in response to slowing economic growth and easing inflation.

In addition, Deputy Governor Hauser tempered expectations regarding RBA easing on Monday, cautioning that Australian rates may not fall as much or as quickly as those of other central banks due to inflation remaining "too high." Hauser noted that most RBA models estimate a neutral rate between 3-4%, suggesting that the current policy rate of 4.35% is not excessively restrictive.

Although potential rate cuts from the Federal Reserve (Fed) could offer some support to AUD/USD later this year, uncertainties around China’s economic outlook continue to pose a challenge.

On the positioning side, speculators remained net long on the Aussie Dollar for the third straight week, despite a slight pullback in open interest. These positions will likely be tested in the coming weeks, depending on the progress of China’s stimulus packages.

Looking ahead, attention will turn to next week’s release of advanced Judo Bank Manufacturing and Services PMIs in Australia, which will be closely monitored.

AUD/USD daily chart

AUD/USD short-term technical outlook

Extra losses might push the AUD/USD down to its October bottom of 0.6650 (October 22), ahead of the September low of 0.6622 (September 11), which is still supported by the key 200-day SMA.

On the positive side, the first challenge comes at the 2024 high of 0.6942 (September 30), which is just before the key 0.7000 barrier.

The four-hour chart indicates that a potential consolidation could be in the offing. That said, initial support is at 0.6650, followed by 0.6622. On the upswing, the initial resistance level is at the 55-SMA at 0.6706, seconded by 0.6723 and the 200-SMA at 0.6765. The RSI fell to around 45