22/08/24

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The AUD/USD currency pair has experienced additional downward pressure, revisiting the 0.6700 level after a strong dollar rally. Following a rejection of its recent highs around 0.6760, the pair’s performance suggests some initial support in the vicinity of 0.6700. The pair’s medium-term outlook appears positive, bolstered by a recent breakout above the critical 200-day simple moving average (SMA) at 0.6605.

Despite the recent recovery, the pair has struggled around the 0.6760 resistance level. This rebound can be largely attributed to the weakening of the US Dollar and a general recovery in risk assets. Commodity price movements have also played a significant role, with copper prices declining while iron ore prices showed slight improvement, amid ongoing concerns about China’s economic situation, particularly its real estate sector.

On the monetary policy front, the Reserve Bank of Australia (RBA) has opted to keep its official cash rate steady at 4.35%. The RBA’s cautious approach, influenced by persistent domestic inflation, suggests that there are no immediate plans to ease policy. Inflation targets are now anticipated to be met later than initially predicted, with core inflation expected to fall into the desirable range by late 2025.

Market sentiment regarding the AUD has been uplifted by recent discussions within the RBA that indicated a readiness to raise interest rates if necessary. There is a consensus that a rate cut in the short term is unlikely, signaling the RBA’s commitment to addressing inflationary pressures.

Meanwhile, external factors, such as slow progress in the Chinese economy and ongoing concerns regarding demand from this key partner, could dampen the Australian dollar’s recovery prospects. Recent reports indicate that speculators remain predominantly net-short on the AUD due to these uncertainties.

In domestic developments, the latest PMIs showed improvement, adding to the reasons supporting the Australian dollar. Technically, any further gains in the AUD/USD could aim for targets near its August peak, while potential bearish movements may find support from the 200-day SMA. Overall, while the outlook remains cautiously optimistic, close attention to global and domestic economic indicators will be crucial in forecasting future movements in the currency pair.