AUD/USD Forecast: Bearish Outlook Ahead of RBA Meeting. The AUD/USD pair has resumed its decline, quickly reversing Wednesday’s modest advance and dropping back to the key 0.6500 level, marking two-month lows. The Australian dollar remains under pressure, trading below the critical 200-day SMA against the US dollar, signaling vulnerability to further losses in the near term.

Key Factors Influencing AUD/USD

1. US Dollar Strength: The US dollar has rebounded strongly, overcoming some of its post-FOMC weakness, which has contributed to the AUD/USD decline.
2. China’s Economic Prospects: Weak economic data from China, Australia’s largest trading partner, has added to the bearish sentiment. The recent interest rate cut by the People’s Bank of China (PBoC) weakened the Chinese yuan, negatively impacting the Australian dollar due to its close economic ties with China and its role as a proxy for the yuan.
3. Commodity Prices: The ongoing sell-off in commodity prices has further weighed on the AUD. Iron ore prices saw only a slight rebound, staying around the $100 per tonne mark, while copper prices have retreated sharply after two days of gains.
4. Monetary Policy Outlook: Recent inflation data in Australia has reduced the likelihood of further tightening by the Reserve Bank of Australia (RBA). Market expectations now lean towards the RBA maintaining the official cash rate at 4.35% in its upcoming meeting and potentially keeping rates unchanged for the rest of the year. The RBA is expected to be the last among G10 central banks to begin cutting rates, anticipating a gradual return of inflation to the 2-3% target range.

Potential Support for AUD/USD

Despite the current bearish outlook, potential easing by the Federal Reserve in the medium term, compared to the RBA’s likely prolonged restrictive stance, could provide some support for AUD/USD in the coming months. However, the sluggish momentum in the Chinese economy, coupled with post-pandemic challenges and deflation concerns, might hinder a sustained recovery for the Australian dollar.

Data Highlights

• Australia: The trade surplus widened to A$5.589 billion in June, and the final Judo Bank Manufacturing PMI improved to 47.5 in July.
• China: Despite the Chinese Politburo’s pledges to support the economy, no new specific stimulus measures were announced, raising concerns about demand from the world’s second-largest economy.

AUD/USD Daily Price Chart

Source: TradingView, prepared by FX4Today Team

The AUD/USD pair continues to show a bearish outlook as we approach the Reserve Bank of Australia (RBA) policy meeting. Several factors are contributing to this sentiment:

1. Global Economic Uncertainty: Concerns about global economic growth, particularly in China, Australia’s largest trading partner, have weighed heavily on the Australian dollar. Slower Chinese growth means reduced demand for Australian exports, which in turn weakens the AUD.
2. Commodity Prices: Australia is a major exporter of commodities, and recent declines in commodity prices, such as iron ore and coal, have put downward pressure on the AUD.
3. Interest Rate Expectations: Market participants are closely watching the RBA for any signs of monetary policy changes. If the RBA signals further rate cuts or maintains a dovish stance, it could lead to additional AUD weakness.
4. US Dollar Strength: The US dollar has been strong against most currencies due to the Federal Reserve’s relatively hawkish stance and safe-haven demand. This strength in the USD has contributed to the bearish trend in AUD/USD.

Technical Analysis

• Support Levels: Key support levels to watch are around 0.6500 and 0.6400. A break below these levels could indicate further downside potential.
• Resistance Levels: On the upside, resistance is seen around 0.6700 and 0.6800. A break above these levels could suggest a potential reversal, although current sentiment favors a bearish trend.
• Indicators: Moving averages and momentum indicators are pointing to continued bearish momentum. Traders may look for oversold conditions as potential entry points for short positions.

Trading Strategy

Given the current outlook, traders might consider the following strategies:

• Short Positions: Consider short positions on rallies towards resistance levels, with tight stop-loss orders to manage risk.
• Breakout Trades: Watch for a breakout below key support levels for potential short trade opportunities.

The AUD/USD pair remains under significant pressure due to a combination of US dollar strength, weak Chinese economic prospects, declining commodity prices, and a subdued outlook for further monetary tightening by the RBA. While potential Fed easing might offer some medium-term relief, the broader economic challenges, particularly from China, continue to pose significant downside risks for the Australian dollar.

As always, it’s important to stay updated with any new developments from the RBA and global economic data, as these can significantly impact the AUD/USD pair.