AUD/USD retreats following RBA-fueled rally

The Australian dollar rose after the Reserve Bank of Australia (RBA) considered rate cuts. The RBA held rates steady, but investors will be watching the Federal Open Market Committee’s latest Meeting Minutes on Wednesday to determine the US Fed’s proximity to cutting interest rates.

The RBA’s internal dialogue appears to lean towards further rate cuts if faster progress isn’t made on inflation. With Australia’s economy grappling with a tight labor market and high services inflation, it could take until well into 2025 before inflation reaches target levels.

The AUD/USD reached its highest bids in nearly three weeks on Tuesday, climbing towards 0.6580 but falling just short of the interim level before getting pulled back into 0.6550 on stiffer US Dollar flows. The pair is grappling with a low-conviction recovery from the last swing low into 0.6450, and bullish momentum is running into a technical ceiling at the 200-day Simple Moving Average near 0.6565.

Beyond near-term price action, a heavy resistance zone from 0.6620 to 0.6600 weighs on bullish momentum into the medium-term.