Bullish View
- Buy the AUD/USD pair and set a take-profit at 0.7700.
- Add a stop-loss at 0.7500.
- Timeline: 1 day.
Bearish View
- Set a sell-stop at 0.7537 and a take-profit at 0.7450.
- Add a stop-loss at 0.7600.
The AUD/USD pair pulled back during the American and Australian sessions after the hawkish statements from the Fed and Australia. After rising to a multi-month high of 0.7655 on Tuesday, the pair declined to a low of 0.7570.
Hawkish Fed and RBA
The Federal Reserve is set to get more aggressive, according to its incoming vice-chair. In a statement on Tuesday, Lael Brainard said that the bank will do whatever it took to contain inflation.
In addition to rate hikes, the bank will likely announce that it will start to wind down its $9 trillion balance sheet. She expects that the Fed will make this decision in the upcoming meeting scheduled for May this year. Other Fed officials like Clarida and Mary Daly have hinted that the bank will deliver a 0.50% hike in May.
This statement comes at a time when the bond market is sending warning signs about the economy. Last week, the yield curve inverted to its lowest level since 2007. Historically, inversion of the yield curve is usually a sign that the economy will go through a recession in the coming months. The Fed will publish its minutes later on Wednesday.
On Tuesday, the AUD/USD pair jumped sharply after the Reserve Bank of Australia (RBA) made its interest rate decision. The bank decided to leave its interest rate unchanged at 0.10% as most analysts were expecting.
The main reason why the pair jumped sharply initially was that the bank abandoned its language on patience on inflation. As a result, it left the door wide open that it will deliver its first interest rate hike in June this year. If this happens, it will be the first time that the RBA has hiked interest rates since November 2010.
AUD/USD Forecast
The four-hour chart shows that the AUD/USD pair has been in a strong bullish trend in the past few days. This trend accelerated on Tuesday after the RBA interest rate decision. As it rose, the pair managed to move above the key resistance level at 0.7537, which was the highest point on March 28. It is still above the 50-day moving average while the Stochastic Oscillator has moved below the overbought level. The Money Flow Index (MFI) is slightly below the overbought level.
Therefore, the pair will likely resume the bullish trend ahead of the FOMC minutes. The next key level to watch will be at 0.7750.
