A move to 0.7000 appears on the horizon

• AUD/USD made new highs beyond the 0.6900 barrier.
• The dollar’s late rally led the AUD to deliver initial gains.
• The RBA’s monthly CPI fell to 2.7% in August.

On Wednesday, a late rally in the US dollar (USD) prompted risk-on assets to pare early gains, forcing AUD/USD to pull back from previous highs north of the 0.6900 barrier, a region last visited in late February 2023 .

It’s worth recalling that the Australian dollar has rallied over the past two sessions, propelled by news of additional stimulus from the PBoC.

Meanwhile, the Greenback touched support near annual lows around 100.20, triggering a fairly sharp rally and reviewing the 100.80 area when gauged by the US Dollar Index (DXY).

The pair’s daily pullback also came in tandem with a further rally in copper and iron ore prices, all underpinned by firm expectations of Chinese stimulus.

Meanwhile, the Reserve Bank of Australia (RBA) kept rates steady at 4.35% as expected at its September 24 meeting. The bank maintained its neutral stance, saying “The board is not deciding anything in or out”, while warning that “it will be some time before inflation is sustainably within the target range” and stressing “need to remain vigilant to rising risks to inflation.”

However, during the press conference after the meeting, Gov. Michele Bullock toned down the shocking tone, confirming that the Council “did not explicitly consider a rate increase this time.”

So far, investors see a near 55% chance of a 25 basis point cut by the end of the year.
Meanwhile, the RBA could be among the last G10 central banks to start cutting rates. It is expected to join the global easing cycle later this year as weak underlying economic activity points to lower inflationary pressures.

Looking ahead, with Federal Reserve interest rate cuts expected and the RBA likely to maintain a restrictive stance for some time, AUD/USD could see further improvement later this year.

However, a big question mark surrounds the Chinese economy, as uncertainty remains high about the likelihood that the country will be able to materialize the recently announced stimulus package.

On the domestic calendar, the RBA’s monthly CPI gauge rose to 2.7% in August from 3.5%. In that regard, it’s worth remembering that Governor Bullock played down the significance of this release, noting that it’s “quite volatile” and doesn’t capture all the elements like the quarterly CPI data. The RBA also reiterated that it does not expect inflation to return “sustainably” to its target range of 2-3% by 2026.

AUD/USD Daily Chart

AUD/USD Short-Term Technical Outlook

Further gains are likely to take AUD/USD to the 2024 high of 0.6908 ahead of the important 0.7000 level.

Sellers, on the other hand, can initially pull the pair to the September low of 0.6622 (September 11), which is supported by the key 200-day SMA, all ahead of the 2024 low of 0, 6347 (August 5).

The four-hour chart indicates some loss of positive sentiment momentum. That said, initial resistance is at 0.6908, ahead of 0.6920 and 0.7024. On the downside, early support comes from the 55-SMA at 0.6789, followed by the 100-SMA at 0.6746 and finally 0.6692. The RSI hovered around 50.