There is no change in the optimistic outlook

• AUD/USD climbed to new highs north of the 0.6800 barrier.
• The dollar’s rebound fizzled out towards the end of the day.
• Retail sales will be the big event in Oz at the end of the week.

On Thursday, AUD/USD regained its balance and once again moved higher through the pivotal 0.6800 level, hitting new highs at levels not seen since early January. The Aussie’s uptrend resumption came despite acceptable greenback gains, although the US Dollar Index (DXY) lost some upside momentum as the day drew to a close on Thursday.

At the moment, the pair’s upside momentum is very strong, supported by a recent break above the 200-day SMA at 0.6612, which has changed the short-term outlook to a decidedly bullish position for AUD/USD.

The rally in the AUD during August was mainly supported by a weak USD and improved risk asset conditions.

In addition, both copper and iron ore prices posted small gains, although sufficient to contribute to the Aussie dollar’s upward momentum.

Recent developments in monetary policy have contributed to the Australian dollar’s multi-week rally. Indeed, the RBA decided not to change the current OCR at 4.35% at this month’s event, taking a conservative approach and demonstrating no clear intention to ease policy anytime soon in light of ongoing domestic inflationary pressures.

Later in a speech, Governor Michelle Bullock reiterated that the RBA is prepared to raise rates further if necessary to control inflation, while maintaining a hawkish tone due to high underlying inflation. She pointed out that the bank continued to monitor inflation risks after taking the decision not to change.

Core inflation, at 3.9% in the previous quarter, is within the target range of 2-3% at the end of 2025. Forecasts now show that both average and headline CPI inflation will reach the target range of 2- 3% by the end of 2026. which is longer than originally forecast.

Optimism towards the AUD was further compounded by the shock tone of last week’s RBA minutes, which showed debate among members over whether to raise or leave the cash rate target unchanged. An increase was argued for due to persistent undercurrents of inflation and market expectations of a few rate cuts later in 2024. Ultimately, the current target for the cash rate was deemed to be appropriately maintained. Policymakers also noted that a rate cut in the near future is unlikely, although rates could still be changed in the future.

At this point, the RBA is expected to be the last of the G10 central banks to start cutting rates. For now, swaps continue to hold a roughly 90% chance of an RBA rate cut before the end of the year; however, this remains subject to any uncertainty, given that the call will depend heavily on incoming data.

However, with the Fed cutting interest rates in the near future, while the RBA’s projected prolonged tightening mode suggests a stronger AUD/USD is more likely in the coming months.

However, gains for the Australian dollar are likely to be limited as China’s economic recovery is gradual and slow. Deflation, along with a lack of sufficient stimulus, is holding China back from the pandemic. The Politburo meeting failed to announce concrete new stimulus measures, despite the announcement of support, deepening fears about demand in the world’s second largest economy.

Meanwhile, the latest CFTC report for the week ended August 20 shows that speculators are maintaining their overall net-short position against the AUD, but have reduced their positions to three-week lows. They have been net short since Q2 2021, except for a two-week break so far this year.

On the Australian calendar, housing credit figures and key retail sales are due at the end of the week.

AUD/USD Daily Chart

AUD/USD Short-Term Technical Outlook

Further progress is expected to push AUD/USD to the August high of 0.6823 (29 August), ahead of the December 2023 peak of 0.6871 (28 December) and the 0.7000 milestone.

Occasional bear attempts, on the other hand, may lead to an initial slide towards the temporary 55-day SMA of 0.6658 before the important 200-day SMA of 0.6612 and 0.6347 in 2024 (5 Aug ).

The four-hour chart shows the continuation of range trading. However, the immediate resistance level is 0.6823, ahead of 0.6871. On the other hand, 55-SMA at 0.6750 is first, followed by 0.6697 and 200-SMA at 0.6638. The RSI rose to around 63.