AUD/USD Price Forecast: Holds above 0.7000 as bulls await breakout above 100-SMA hurdle
- AUD/USD struggles to capitalize on modest Asian session gains to the 100- SMA pivotal resistance.
- Fed hike bets and geopolitical risks continue to underpin the USD, capping the upside for the pair.
- Hawkish RBA expectations support the Aussie as traders await the FOMC decision on Wednesday.
The AUD/USD pair once again fails near the 100-day Simple Moving Average (SMA), trimming a part of Tuesday's modest Asian session gains back closer to a one-month high, which it touched the previous day. Spot prices, however, hold above the 0.7000 psychological mark, warranting caution for bearish traders ahead of the key data and central bank event risks.
Australia's monthly consumer inflation figures are due for release on Wednesday, which will be followed by the highly anticipated FOMC policy decision. The US Federal Reserve (Fed) is expected to keep interest rates unchanged at the end of a two-day policy meeting, suggesting that the focus will be on the accompanying policy statement and Fed Chair Kevin Warsh's comments at the post-meeting press conference. Apart from this, the US macro data – the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index, due on Thursday – will be looked at for more cues about the Fed's policy path. The outlook, in turn, will influence the US Dollar (USD) and provide a fresh impetus to the AUD/USD pair.
In the meantime, the growing acceptance that the US central bank will raise borrowing costs in December amid inflationary concerns stemming from elevated energy prices, along with geopolitical uncertainties, acts as a tailwind for the buck. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, scales higher for the third straight day and caps the upside for the AUD/USD pair. However, hawkish Reserve Bank of Australia (RBA) rate expectations act as a tailwind for the Aussie and help limit the downside for the currency. Hence, it will be prudent to wait for a convincing break below the 0.7000 round figure before confirming that the recent recovery from a multi-month low has run out of steam.
From a technical perspective, spot prices maintain a capped tone near the 100-day SMA, currently pressuring the 38.2% Fibonacci retracement at 0.7025, keeping the broader bias fragile despite mildly positive momentum indicators. In fact, the Relative Strength Index (RSI) around 51 and a rising Moving Average Convergence Divergence (MACD) above the zero line hint at tentative recovery rather than a clear bullish turn, while the AUD/USD pair remains under the aforementioned technical barrier. A daily close above this cluster, however, would open the way toward the 50% retracement at 0.7065 and the 61.8% level at 0.7105, with the 78.6% retracement at 0.7162 acting as a stronger medium-term cap.
On the downside, initial support emerges at the 23.6% Fibo. retracement near 0.6976, ahead of the structural low around 0.6895, where a break would revive the broader bearish trend and negate the current momentum uptick.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
AUD/USD daily chart
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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