AUD/USD Price Forecast: Further losses look likely below 0.6700

AUD/USD extended its bearish move to the boundaries of the 0.6700 level.
The US Dollar resumed its uptrend amidst a risk-off atmosphere.
China’s fiscal stimulus package came in short of investors’ estimates.

AUD/USD maintained its downward trend on Wednesday, falling for the fifth consecutive session due to a marked rise in the US Dollar (USD), and steady scepticism around China’s recently announced stimulus measures.

As a result, the pair neared the critical support around 0.6700, a zone where both the 55-day and 100-day SMAs converge.

Furthermore, the Australian Dollar’s decline occurred amidst extra losses in other risk-sensitive currencies as traders continued to evaluate the Federal Reserve’s (Fed) rate trajectory, alongside ongoing geopolitical tensions in the Middle East.

Further weighing on the AUD were falling copper and iron ore prices, driven by ongoing doubts surrounding the effectiveness of China’s stimulus efforts, particularly in the housing sector.

Monetarily, the RBA held its cash rate steady at 4.35% during its September meeting. While acknowledging inflation risks, Governor Michele Bullock indicated that a rate hike was not seriously considered.

Earlier in the week, the RBA’s Minutes were released, signaling a dovish shift as the bank dropped its August guidance, which suggested the cash rate was unlikely to decrease in the short term.

However, RBA Deputy Governor Andrew Hauser later downplayed this dovish interpretation, stressing that the bank’s work to curb inflation is “not done yet.”

Currently, markets are pricing in a 55% probability 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, likely in response to slowing economic activity and easing inflation pressures.

Although Federal Reserve rate cuts have already been factored in, the pair could still see gains in 2024. However, uncertainties linger regarding China’s economic outlook and the effectiveness of its stimulus measures.

In terms of positioning, the latest CFTC report indicated that speculators held net long positions in the AUD for the first time since July, as of the week ending October 1. This was accompanied by a significant increase in open interest, with AUD/USD reclaiming levels above 0.6900 for the first time since February 2023 during this period.

AUD/USD daily chart

AUD/USD short-term technical outlook

Extra losses may cause the AUD/USD to retest the October low of 0.6707, ahead of the September low of 0.6622 (September 11), which is still supported by the critical 200-day SMA (0.6626).

On the bright side, the first obstacle arises at the 2024 high of 0.6942 (September 30), which precedes the significant 0.7000 milestone.

The four-hour chart shows a rise in the negative trend. Having said that, the initial support is 0.6707, followed by 0.6622. On the upside, the 200-SMA at 0.6782 is ahead of 0.6809 and the 100-SMA at 0.6830. The RSI decreased to around 26.

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