A decent retracement is seen around 0.6700

• AUD/USD reversed its multi-day decline after falling to 0.6700.
• The US dollar made marginal gains after the US CPI surprised higher.
• Australian inflation expectations fell to 4.0% in October.

Finally, a respite for the heavy selling in AUD/USD. That said, the pair regained some balance and posted decent gains on Thursday, reversing five consecutive days of losses, despite the US dollar’s (USD) weak advance and lingering skepticism around China’s latest stimulus initiatives.

In fact, the spot initially challenged key support at 0.6700, an area where both the 55-day and 100-day SMAs coincide, regaining new upward traction shortly thereafter.

Also bolstering the Aussie’s renewed bullish momentum was the recovery in copper and iron ore prices, despite lingering uncertainty surrounding the recently announced Chinese stimulus package.

On the monetary policy front, the Reserve Bank of Australia (RBA) kept its cash rate steady at 4.35% during the September meeting. While the RBA acknowledged inflationary risks, Governor Michele Bullock noted that a rate hike was not a serious consideration at this time.

Earlier in the week, the release of the RBA meeting minutes signaled a shift to a more accommodative stance. The central bank dropped guidance from August that suggested interest rates would remain steady in the near term.

However, RBA deputy governor Andrew Hauser later clarified that the interpretation of a dovish turnaround may be premature, stressing that the central bank’s efforts to tackle inflation are “far from over”.

Market sentiment currently reflects 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 economic growth and reducing inflation. pressures.

Despite Federal Reserve interest rate cuts already factoring into the outlook, AUD/USD could extend the rally into the latter part of the year. However, uncertainties about China’s economic outlook and the effectiveness of its stimulus measures continue to cloud the picture.

On the domestic calendar, consumer inflation expectations rose to 4.0% in October (from 4.4%), according to the Melbourne Institute.

AUD/USD Daily Chart

AUD/USD Short-Term Technical Outlook

Further losses could see AUD/USD retest the low of 0.6699 (10 Oct) ahead of the September low of 0.6622 (11 Sep), which is still supported by the critical 200-day SMA (0.6626) .

Furthermore, the first obstacle appears at the 2024 peak of 0.6942 (September 30), which comes ahead of the key milestone of 0.7000.

The four-hour chart shows a resurgence of the bullish mood. Having said that, the initial support is 0.6699 followed by 0.6622. On the upside, 200-SMA at 0.6780 before 0.6809 and 100-SMA at 0.6828. RSI has dropped to around 35.