Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6860.
- Add a stop-loss at 0.6700.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6700 and a take-profit at 0.6600.
- Add a stop-loss at 0.6800.
The AUD/USD price darted higher as investors placed bets that the Reserve Bank of Australia (RBA) will need to match the actions of the Federal Reserve. The pair rose to a high of 0.6760, the highest level since March 6 of this year.
Federal Reserve interest rate hike
The AUD/USD exchange rate continued rising on Thursday morning as Asian traders reflected on the decision by the Federal Reserve. In a statement on Wednesday, the Fed decided to hike interest rates by 0.25% for the second straight month.
The bank decided to strike a balanced tone as it navigated a difficult situation with inflation being above its 2% target by far. It also contended with the fallout in the banking sector, where many regional banks are straining. A recent report warned that as many as 190 banks could fail if interest rates remained at an elevated level for longer.
In his press conference, Jerome Powell warned that the Fed will need to hike interest rates further in the coming months since inflation remains sticky. At the same time, he was committed that the bank had tools to contain the fallout in the banking sector.
RBA minutes published on Tuesday showed that the committee considered pausing interest rate hikes in the coming meeting as it assesses the impact of the recent increases. However, following the Fed's decision, some analysts warn that the RBA could also be forced to deliver the 11th rate hike in the coming meeting. Analysts at Bancshares hinted that the RBA will hike rates by 0.25% in April and then hit a strategic pause.
There will be no economic data from Australia on Thursday. In the US, the key data to watch will be the upcoming US new home sales numbers. Economists expect the data to show that new home sales dropped to 650k in February. The US will also publish the latest initial and continuing jobless claims numbers.
AUD/USD forecast
The AUD/USD pair has drifted upwards slightly in the past few days. It rose to a high of 0.6755, the highest point on March 6. The pair also moved slightly above the 50-period interest rate hike while the Relative Strength Index (RSI) moved close to the overbought level. It also jumped above the 24.6% Fibonacci retracement level.
Therefore, the pair will likely continue rising interest rates as buyers target the next key resistance level at 0.6860, the 50% Fibonacci retracement level.
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