AUD Breakout Imminent as RBA Meeting Looms and China Stimulus Boosts Exports

The Australian dollar is showing signs of strength as it approaches key technical levels and the Reserve Bank of Australia's (RBA) upcoming policy meeting. The AUD/USD exchange rate has risen to around 0.6650, up from 0.6580 a week ago, due in part to a softer US dollar and renewed optimism about China's economic stimulus measures.

The RBA's decision on June 3 is widely expected to hold the cash rate steady at 4.35%, but the accompanying statement and updated economic projections will be closely scrutinized for any hints about future rate moves. Market pricing suggests a 40% chance of a rate cut by August, which could potentially weigh on the AUD if the RBA adopts a more dovish stance.

Technically, the Australian dollar is at a critical juncture, with the 14-day Relative Strength Index (RSI) hovering around 55 and the 50-day moving average providing support. A clear break above the resistance zone at 0.6700-0.6720 could open the door to further gains, targeting 0.6800.

The Australian dollar's strength is also being driven by China's recent policy measures, which are seen as supportive for Australia's export sector. However, the effect may be gradual, and traders will watch for concrete data on Chinese industrial production and retail sales due later this month.