More positive views on the Fed

• AUD/USD traded in a swingy mood, breaking above the 0.6700 barrier.
• The dollar managed to regain upward momentum on firmer US data.
• Next on tap in Oz will be the Westpac Leading Index.

Renewed bidding in the US dollar (USD) is keeping price action in the risk-sensitive space under some pressure, with AUD/USD navigating a tight range above the 0.6700 level on Tuesday. That said, the Aussie dollar managed to maintain its auspicious start to the week, despite the rebound in the greenback.

However, the AUD still faces challenges due to occasional strength in the greenback and continued concerns about China’s economic performance.

The pair’s small advance on Tuesday coincided with a spike in copper prices, although iron ore prices rebounded slightly. Given that iron ore is closely linked to China’s real estate and industrial sectors, this weakness could limit the Australian dollar’s gains in the short to medium term.

Meanwhile, the Reserve Bank of Australia’s (RBA) current monetary policy stance has also helped maintain the Australian currency’s uptrend. That said, the RBA kept the official cash rate (OCR) steady at 4.35% in August, taking a cautious approach amid persistent inflation. The latest RBA minutes also came in on the dovish side and indicated talk of a potential hike in the cash rate target, underscoring ongoing inflation concerns and market expectations for a rate cut in late 2024.

In subsequent comments, RBA Governor Michelle Bullock reiterated her cautious approach, warning of elevated inflation risks and suggesting rate cuts were unlikely in the near term. However, futures point to around an 85% chance of a 25 basis point cut by the end of the year, making the RBA likely to be the last of the G10 central banks to initiate rate cuts.

With the Federal Reserve expected to implement rate cuts that are largely priced in and the RBA anticipated to maintain a tight policy for a while, AUD/USD could see further gains later this year.

However, the slow recovery of the Chinese economy remains a headwind. Deflation and insufficient stimulus are holding back China’s post-pandemic recovery, and the latest Politburo meeting, while supportive, did not unveil major new stimulus measures, raising concerns about demand in the world’s second-largest economy.

Additionally, the latest CFTC report for the week ended September 10 showed speculative net shorts in the Australian currency hit two-week highs amid a rebound in open interest. Since Q2 2021, the AUD has largely remained in net short territory, with only a brief period of net long positioning earlier this year.

Looking ahead, the next key data release for Australia will be the headline index measured by Westpac on 18 September.

AUD/USD Daily Chart

AUD/USD Short-Term Technical Outlook

Further gains are expected to propel AUD/USD to its August peak of 0.6823 (29 August), followed by the December 2023 peak of 0.6871 (28 December) and finally to the important hurdle of 0 ,7000.

Sellers, on the other hand, could push the pair below its September low of 0.6622 (September 11), which is supported by the key 200-day SMA at 0.6619. From here, it is the 2024 low of 0.6347 (August 5).

The four-hour chart indicates further strengthening of the bullish position. That said, 0.6768 appears as the initial upside barrier, followed by 0.6823. On the downside, the preliminary 55-SMA is at 0.6701, before the 200-SMA at 0.6675 and finally at 0.6622. The RSI was above 62.