Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6600.
- Add a stop-loss a 0.6750.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6765 and a take-profit at 0.6850.
- Add a stop-loss at 0.6685.
The AUD/USD price plunged to the lowest level since January 4 as bets of tighter monetary policy in the US rose. It plunged to a low of 0.6720, which was lower than this year’s high of 0.7158. This crash happened as the US dollar index jumped to $105.5.
Fed interest rate hikes bets
The US published strong inflation numbers on Friday, sending signals that the Federal Reserve will continue hiking interest rates. Data published on Friday showed that the personal consumption expenditures price index rose by 5.4% in January. The core figure, which excludes the volatile food and energy prices, rose by 4.7%.
These are important numbers because they are seen as the Fed’s favorite inflation indicators. They were both higher than where they were a month earlier and significantly higher than the Fed’s target of 2.0%. Therefore, analysts believe that the Fed has room for more hikes going forward. In a statement, Loretta Mester said that inflation was too high and that the economy hadn’t changed too much.
Analysts at key banks like Goldman Sachs, Bank of America, and Citigroup warned that the bank will hike rates until June. And instead of cutting, the committee will maintain them at an elevated level for longer than expected.
The AUD/USD pair will react to numerous figures this week. On Monday, the US will publish the latest durable goods orders and pending home sales numbers. And on Tuesday, the Conference Board will publish the latest consumer confidence figure while Australia will release the second estimate of GDP figures.
AUD/USD forecast
The AUD/USD pair has been in a strong bearish trend in the past few months. This decline happened as the US dollar index (DXY) strength continued. The closely watched dollar index (DXY) has risen from about $101 in January to about $105.
Meanwhile, the pair has moved slightly below the key support point at 0.6814 (Feb 17 low) and 0.6858 (Feb 6 low). It has also moved slightly below the 78.6% Fibonacci Retracement level and the 25-day and 50-day moving averages. The Relative Strength Index (RSI) has moved below the oversold level.
Therefore, the pair will likely continue falling in the near term. If this happens, the next psychological level to watch will be at 0.6600. The stop-loss of this trade will be at 0.6750.
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