A test of the 200-day SMA should not be discarded

• AUD/USD extended its decline to three-week lows near 0.6760.
• The US dollar alternated between gains and losses near recent peaks.
• Australia’s inflation gauge rose 0.1% in September.

AUD/USD started the new trading week on the back foot, intensifying its selling momentum and revising the 0.6760 region to hit fresh three-week lows.

The Aussie’s continued downtrend mirrored that of other risk-sensitive currencies despite an indecisive day in the US dollar (USD) as market participants continued to digest stronger US NFP than expected from Friday (+254,000), while unexpected geopolitics. tensions in the Middle East also supported demand for the Green Bill.

Adding to the negative sentiment around the AUD, copper prices continued their recent slide, while iron ore prices added to Friday’s recovery, despite lingering skepticism around China’s recently announced stimulus measures, particularly those that it targets the real estate sector, which in turn is expected to support iron. ore prices.

On the monetary front, the Reserve Bank of Australia (RBA) kept its cash rate unchanged at 4.10% at its September meeting. While the RBA acknowledged inflation risks, Governor Michele Bullock indicated that a rate hike was not being seriously considered.

Markets are currently pricing in a 55% probability of a 25 basis point rate cut by the end of the year. Indeed, the RBA is expected to be among the last G10 central banks to cut interest rates, potentially cutting later this year to deal with sluggish economic activity and reduce inflationary pressures.

Even with Federal Reserve (Fed) interest rate cuts already factored in, AUD/USD could post further gains in 2024. However, uncertainties remain over China’s economic outlook and the implementation of its stimulus efforts.

Domestically, the inflation gauge rose 0.1% month-on-month in September, according to the Melbourne Institute.

From the CFTC’s latest report, speculators held net longs for the first time since July in the week ending Oct. 1. Moreover, the move came in tandem with a decent increase in open interest. During that time, AUD/USD further extended its recovery, retrieving the area beyond 0.6900 for the first time since February 2023.

AUD/USD Daily Chart

AUD/USD Short-Term Technical Outlook

Further losses could see AUD/USD decline to retest the intermediate 55-day and 100-day SMAs of 0.6702 and 0.6687, respectively, ahead of the September low of 0.6622 (September 11), which it is still supported by the 200 day key. SMA (0.6626).

Further, the initial hurdle appears at the 2024 high of 0.6942 (September 30), ahead of the critical 0.7000 threshold.

The four-hour chart indicates an acceleration of the downtrend. That said, the initial support is 0.6756, followed by 0.6737 and finally 0.6622. On the upside, the initial hurdle is the 100-SMA at 0.6829, ahead of the 55-SMA of 0.6869 and then 0.6942. RSI dropped to near 26.