Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6800.
- Add a stop-loss at 0.7030.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.700 and a take-profit at 0.7100.
- Add a stop-loss at 0.6925.
The AUD/USD exchange rate drifted higher even as iron ore prices crashed to the lowest point in a month. It rose to 0.6970, higher than last week’s low of 0.6890. This price was ~1.48% above the lowest point this month and ~2.72% below this month’s high.
Iron ore prices retreat
The Australian dollar rose slightly as the US dollar index pulled back in the overnight session. The closely-watched index declined from $103.7 to $103.3 as the greenback dropped against most currencies. This dollar declined ahead of the upcoming American inflation numbers scheduled for later today.
There are mixed signals about the country’s inflation. Gasoline prices have held steady at about $3 in the past few months while service inflation remains high. Therefore, there is a likelihood that inflation rose slightly on a month-on-month basis.
These numbers are important because of the mixed data being published by the US. For example, the labor market remains extremely tight, with the unemployment rate standing at a multi-decade low of 3.4%. Wages also remain high. A report published on Monday showed that most Americans expect wage growth to subside even as inflation rises. The median expected growth of household income dropped to 3.3% in January.
Meanwhile, iron ore prices pulled back amid rising concerns about the Chinese recovery. The benchmark iron ore traded at the Dalian exchange was trading at 841.50 yuan/ton, the lowest point in a month. There are concerns about how quickly the Chinese economy will recover and the impact of rising inventories.
Iron ore is an important part of the Australian economy since it is the biggest export. It exported iron ore worth over $80 billion in 2021. Other top exports like coal, gas, and gold prices have pulled back recently.
AUD/USD forecast
The AUD/USD price rose slightly as the US dollar continued retreating. As it rose, the pair retested the ascending trendline, which connects the lowest points since November 2022. This small comeback also happened after the pair hit the key support at 0.6892 (December 13 high).
Meanwhile, a look at volume flows shows that they are drifting downwards. Therefore, the pair will likely resume the downward trend and possibly retest 0.6892. A move below that level will see it drop to the next psychological point at 0.6800.
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