Further losses look likely below 0.6700

• AUD/USD extended its bearish move to the limits of the 0.6700 level.
• The US dollar resumed its upward trend in a risk-on environment.
• China’s fiscal stimulus package came in below investor estimates.

AUD/USD maintained its downtrend on Wednesday, falling for a fifth consecutive session due to a significant rally in the US dollar (USD) and continued skepticism over China’s recently announced stimulus measures.

As a result, the pair approached critical support around 0.6700, an area where both the 55-day and 100-day SMAs converge.

In addition, the Aussie’s decline came amid further losses in other risk-sensitive currencies as traders continued to assess the Federal Reserve’s (Fed) rate path alongside ongoing geopolitical tensions in the Middle East.

Lower copper and iron ore prices further weighed on the AUD, driven by continued doubts about the effectiveness of China’s stimulus efforts, particularly in the real estate sector.

On the monetary side, the RBA kept its cash rate steady at 4.35% during the September meeting. While acknowledging inflation risks, Governor Michele Bullock indicated that a rate hike was not seriously considered.

Earlier in the week, the RBA’s minutes were released, signaling a tame turnaround as the bank dropped its August guidance, which suggested the cash rate was unlikely to fall in the near term.

However, RBA deputy governor Andrew Hauser later played down this dovish interpretation, stressing that the bank’s work to reduce inflation was “not done yet”.

Markets are currently pricing in a 55% chance of a 25 basis point rate cut by the end of the year, with the RBA expected to be one of the last G10 central banks to cut rates, likely in response to slowing activity economic and reducing inflationary pressures. .

Although interest rate cuts by the Federal Reserve have already been factored in, the pair could still post gains in 2024. However, uncertainties remain about China’s economic outlook and the effectiveness of its stimulus measures.

In terms of positioning, the latest CFTC report indicated that speculators held net long positions in AUD for the first time since July, beginning in the week ending October 1. This was accompanied by a significant increase in open interest as AUD/USD recovered. levels above 0.6900 for the first time since February 2023 during this period.

AUD/USD Daily Chart

AUD/USD Short-Term Technical Outlook

Further losses may see AUD/USD retest the October low of 0.6707 ahead of the September low of 0.6622 (September 11), which is still supported by the critical 200-day SMA (0.6626).

On the bright side, the first hurdle appears at the 2024 high of 0.6942 (September 30), which precedes the significant 0.7000 benchmark.

The four-hour chart shows an increase in the negative trend. That said, the initial support is 0.6707, followed by 0.6622. On the upside, the 200-SMA at 0.6782 is ahead of 0.6809 and the 100-SMA at 0.6830. The RSI has dropped to around 26.