AUD/USD Price Forecast: Next on the upside comes 0.6800

AUD/USD maintained its bullish bias well in place for the third consecutive day on Monday, surpassing the key 0.6700 barrier for the first time since mid-July in quite an auspicious session on Monday.

After breaking through the significant 200-day SMA at 0.6601, the outlook for AUD/USD is expected to improve gradually, potentially supporting the continuation of the uptrend in the short-term horizon.

Monday’s continuation of the monthly uptrend occurred on the back of an extra decline in the US Dollar (USD) and a generalized decent recovery in commodity prices, despite another retracement in iron ore prices. On the latter, it is worth recalling that iron ore futures, in particular, traded at their lowest point in over a year, as disappointing credit data from China, the largest consumer, added to existing concerns about weak demand and high supply.

On the monetary policy front, the Australian dollar has recently gained support from the Reserve Bank of Australia's (RBA) decision to keep the official cash rate (OCR) steady at 4.35%. The RBA has adopted a cautious approach, signalling no immediate plans to ease policy due to persistent domestic inflation. Both trimmed-mean and headline CPI inflation are now expected to reach the midpoint of the 2-3% range by late 2026, later than previously forecasted.

In a subsequent speech, Governor Michelle Bullock reiterated the RBA's readiness to raise interest rates if necessary to manage inflation, maintaining a hawkish stance given the high underlying inflation. She stressed the bank's vigilance regarding inflation risks following the decision to keep rates unchanged. Core inflation, which was at 3.9% last quarter, is projected to fall within the 2-3% target range by late 2025.

Overall, the RBA is expected to be the last among the G10 central banks to start reducing interest rates. The potential for Federal Reserve easing in the medium term, in contrast to the RBA's anticipated prolonged restrictive stance, could support the AUD/USD in the coming months.

However, a slow recovery in the Chinese economy may limit the Australian dollar's rebound. China continues to face post-pandemic issues such as deflation and insufficient stimulus. Concerns about demand from China, the world's second-largest economy, were also raised following the Politburo meeting, which, despite promises of support, did not introduce specific new stimulus measures.

Meanwhile, non-commercial traders (speculators) remain largely net-short on the AUD, as per the latest CFTC report for the week ending on August 13, mainly due to the lack of positive developments from China. Net shorts have predominated since Q2 2021, with only a brief two-week period of interruption.

AUD/USD daily chart

AUD/USD short-term technical outlook

Further increases should take the AUD/USD to the August high of 0.6721 (August 19), ahead of the July top of 0.6798 (July 8) and the December peak of 0.6871.

On the other hand, occasional bearish movements might cause a decline to the 2024 bottom of 0.6347 (August 5) before slipping to the 2023 low of 0.6270 (October 26).

The four-hour chart shows a pick-up in the rising momentum for the time being. That said, the immediate obstacle is at 0.6721, which is ahead of 0.6754 and 0.6798. On the other side, the 200-SMA of 0.6635 offers early support, followed by 0.6560. The RSI increased past 76.