The first stumbling block appears at 0.6760

• AUD/USD added to Wednesday’s decline and revised 0.6700.
• The strong jump in the dollar put the pair under pressure.
• The focus is expected to shift to Powell’s speech on Friday.

AUD/USD has extended its rejection from recent multi-week highs around 0.6760 (August 21), although some initial contention appears to have emerged around the 0.6700 region on Thursday.

The pair’s continued upward move is supported by the recent breakout of the ever-relevant 200-day SMA at 0.6605, which has changed the outlook for AUD/USD to a more positive one, reinforcing the potential for a near-term continued uptrend.

The multi-day rally has so far encountered a tough barrier around 0.6760. It’s worth recalling that the ongoing monthly rebound has been largely driven by a persistent weakening of the US dollar (USD) and a broader recovery in risk assets. On Thursday, renewed weakness in copper prices contrasted with the slight recovery in iron ore prices, although the latter is expected to remain under the microscope in light of the absence of positive developments in China and mainly its real estate sector.

Monetary policy developments have also supported the Australian dollar, with the Reserve Bank of Australia (RBA) recently holding the official cash rate (OCR) at 4.35%. The RBA took a cautious approach, indicating there were no immediate plans to ease policy due to persistent domestic inflation. Both core and headline CPI inflation are now expected to reach the midpoint of the 2-3% target range by the end of 2026, later than previously anticipated.

In a later speech, Governor Michelle Bullock reaffirmed the RBA’s willingness to raise interest rates if necessary to control inflation, maintaining a dovish stance in light of elevated underlying inflation. She emphasized the bank’s vigilance on inflation risks following the decision to keep rates unchanged. Core inflation, which was 3.9% last quarter, is expected to fall within the target range of 2-3% by the end of 2025.

Bullish sentiment around the AUD was also supported by the dovish tone in the RBA’s minutes earlier in the week, where members debated whether to raise the cash rate target or keep it steady. The case for a hike was underpinned by ongoing core inflation and the need to counter market expectations of multiple rate cuts later in 2024. Ultimately, members decided that maintaining the current cash rate target was the better way forward. hello They also agreed that a near-term rate cut is unlikely, although future changes to the target rate remain a possibility.

Overall, the RBA is expected to be the last of the G10 central banks to start cutting interest rates. The potential for Federal Reserve easing in the near term, in contrast to the RBA’s expected prolonged tightening stance, should support the case for a stronger AUD/USD in the coming months. Swap markets are currently anticipating a 25bps rate cut from the RBA towards the end of the year, although such a move looks more likely in Q1 2025.

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

Meanwhile, the latest CFTC report for the week ending August 13 shows that non-commercial traders (speculators) remain largely short on AUD, primarily due to the lack of positive developments in China. Net shorts have dominated since Q2 2021, with only a brief two-week hiatus.

On the domestic front, the Judo Bank Manufacturing and Services flash PMI rose to 48.7 and 52.2 respectively in August, pointing to another reason supporting the AUD.

AUD/USD Daily Chart

AUD/USD Short-Term Technical Outlook

Further gains should propel AUD/USD to the August peak of 0.6761 (21 August), ahead of the July high of 0.6798 (8 July) and the December 2023 peak of 0.6871 (28 December).

On the other hand, occasional bearish efforts may lead to an initial dip to the significant 200-day SMA of 0.6605, ahead of the 2024 low of 0.6347 (5 Aug) and the 2023 low of 0.6270 (26 October).

The four-hour chart suggests some loss of upward momentum lately. However, the immediate resistance is 0.6761, which comes before 0.6798. On the other hand, the 200-SMA at 0.6636 provides early support, followed by 0.6560. RSI has dropped to around 50.