AUD/USD Price Forecast: Next on tap comes 0.6800

• AUD/USD added to the weekly upside bias and retested 0.6790.
• The Dollar traded on the defensive as investors waited for the Fed.
• The Fed is widely expected to cut rates later on Wednesday.

Further selling interest in the US Dollar (USD) lent extra support to the risk-associated space on Wednesday, with AUD/USD extending its bullish momentum for the third straight day and flirting with three-week tops just below 0.6800 the figure.

However, gains in the Australian Dollar are expected to be put to the test in light of the upcoming Fed’s interest rate decision, where the size of the rate cut still remains uncertain.

Wednesday’s decent advance in the Aussie Dollar came alongside a brief uptick in copper prices, although iron ore saw a slight recovery. Given iron ore's strong ties to China's housing and industrial sectors, this vulnerability may limit potential upside for the Australian Dollar in the short- to medium-term.

Meanwhile, the Reserve Bank of Australia's (RBA) current monetary policy stance has supported the Australian Dollar's upward trend. In August, the RBA held the Official Cash Rate (OCR) steady at 4.35%, opting for a cautious stance amid persistent inflationary pressures. The latest RBA minutes were notably hawkish, revealing discussions about potential rate hikes due to ongoing inflation concerns, despite market expectations for rate cuts in late 2024.

In recent remarks, RBA Governor Michelle Bullock reiterated her cautious stance, emphasizing the risks posed by high inflation and suggesting that rate cuts are unlikely in the near term. Nevertheless, market futures indicate about an 85% chance of a 25 bps cut by the end of the year, suggesting the RBA could be among the last G10 central banks to initiate rate reductions.

Looking ahead, with the Federal Reserve's expected rate cuts already largely priced in and the RBA likely to maintain restrictive policies for some time, the AUD/USD pair could see further gains later this year.

However, the slow recovery of the Chinese economy remains a significant obstacle. Deflation and inadequate stimulus measures are hampering China's post-pandemic recovery, and the recent Politburo meeting, though supportive, failed to introduce any major new stimulus initiatives, raising concerns about future demand from the world’s second-largest economy.

Additionally, the latest CFTC report, covering the week ending September 10, revealed that speculative net short positions in the Australian Dollar had reached two-week highs, accompanied by a rise in open interest. Since Q2 2021, the AUD has predominantly remained in net short territory, with only a brief shift to net long positioning earlier this year.

Looking forward, the next key data point for Australia will be the Westpac Leading Index, due for release on September 18.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further increases are projected to take the AUD/USD to its August top of 0.6823 (August 29), followed by the December 2023 peak of 0.6871 (December 28), and finally to the key 0.7000 milestone.

Sellers, on the other side, may initially drag the pair to its September low of 0.6622 (September 11), which is supported by the key 200-day SMA at 0.6620, all ahead of the 2024 bottom of 0.6347 (August 5).

The four-hour chart shows a further strengthening of the bullish posture. That being stated, 0.6789 appears as the first up-barrier, followed by 0.6823. On the downside, the preliminary 100-SMA is at 0.6732, followed by the 55-SMA at 0.6705 and then 0.6692. The RSI hovered around 60.