AUD/USD Price Forecast: Next key support comes at the 2024 low near 0.6350

On Tuesday, AUD/USD continued to face downward pressure, dropping for the third straight day and revisiting the 0.6545-0.6540 band, or two-month lows. The ongoing decline also extended the recent breach of the key 200-day simple moving average (SMA), which currently stands at 0.6627.

The Australian Dollar (AUD) came under extra downside pressure in response to the resurgence of the bid bias in the US Dollar (USD), also keeping most of the risk-associated assets depressed. Other than USD strength, the persevering weakness in the AUD has been largely driven by steady uncertainties regarding the effectiveness of China’s newly introduced stimulus measures earlier in the month.

Additionally, another uptick in copper prices coupled with a minor decline in iron ore prices highlighted the market’s mixed feelings about China’s economic prospects, altogether collaborating with the so far incessant selling pressure on the Aussie Dollar.

On the monetary policy side, the Reserve Bank of Australia (RBA) maintained its cash rate at 4.35% during its September meeting. Governor Michele Bullock recognized ongoing inflationary risks but minimized the likelihood of an imminent rate hike.

Subsequent minutes from the meeting indicated a more dovish stance compared to August, suggesting that interest rates might remain unchanged for the foreseeable future. Market sentiment currently reflects a 50% probability of a 25-basis-point rate cut by the end of the year. Expectations are that the RBA could be among the last G10 central banks to reduce rates as both growth and inflation show signs of cooling.

However, Deputy Governor Andrew Hauser recently cautioned that forecasts for significant RBA rate cuts might be overly optimistic. He pointed out that the neutral rate is estimated to be between 3% and 4%, suggesting that the existing rate of 4.35% is not excessively restrictive.

While potential rate reductions by the Federal Reserve later this year might provide some support to AUD/USD, ongoing uncertainties regarding China’s economic path are likely to exert downward pressure on the pair.

In Australia, the next key releases include the RBA’s Monthly CPI Indicator and the third-quarter Inflation Rate, both scheduled for October 30.

Regarding market positioning, speculative net long positions in AUD reached a two-week high during the week ending October 22, according to the CFTC Positioning Report. Additionally, open interest decreased for the second consecutive week. During this period, AUD/USD traded within a consolidating range above the 0.6650 level, while closely monitoring developments related to China and the implementation of its stimulus packages.

AUD/USD daily chart

AUD/USD short-term technical outlook

Extra losses might push AUD/USD to its October low of 0.6544 (October 29), ahead of the 2024 bottom of 0.6347 (August 5).

On the upside, there is intermediate resistance at the 200-day SMA at 0.6627, seconded by the transitory 100-day and 55-day SMAs of 0.6693 and 0.6738, respectively, all before reaching the 2024 high of 0.6942 (September 30).

The four-hour chart reveals that the negative leg remains in place. Initial support is at 0.6544, followed by 0.6347. On the upside, the initial resistance level is the 55-SMA at 0.6650, followed by the 100-SMA at 0.6686 and finally 0.6723. The RSI fell to around 29.