Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6817.
- Add a stop-loss at 0.6710.
- Timeline: 1 day.
Bearish view
- Set a sell-stop at 0.6730 and a take-profit at 0.6600.
- Add a stop-loss at 0.6825.
The Australian dollar drifted below its last week’s high as market participants waited for the important US consumer inflation data and the Fed interest rate decision. After peaking at 0.6772 on Friday, the pair retreated to a low of 0.6743.
US inflation and Fed decision
The US dollar will be the driver of the AUD/USD pair since the Reserve Bank of Australia (RBA) delivered its interest rate decision last week. In it, the bank caught many investors by surprise as he hiked interest rates by 0.25%.
Therefore, with the RBA maintaining a hawkish tone, investors are now focusing on what the Federal Reserve will do this week. I believe that this will be a pivotal meeting that will chart the path for what to expect later this year.
The US will publish the latest consumer inflation data as the FOMC prepares its meeting. Wall Street is pricing a situation where prices continued dropping in May. They expect that the headline CPI dropped to 4.1% from the pandemic high of over 9%.
Recent indicators are supporting the case for more inflation decline. For example, the price of crude oil, which has an impact on gasoline, has dropped to about $70 a barrel. Natural gas prices have retreated to the lowest point since 2021.
Therefore, if US inflation figures come hotter than expected, there is a likelihood that the AUD/USD pair will fall. A hot number could push the Fed to deliver another rate hike in July. A weaker report than expected will see the pair rise since it will push the Fed to leave rates intact.
AUD/USD technical analysis
Unlike other forex majors, the AUD/USD has been moving in a well-defined trend this month. It has risen relatively well from the monthly low of 0.6460 to a high of 0.6772. This rally happened after the hawkish decision by the Reserve Bank of Australia (RBA).
The AUD/USD pair managed to flip the crucial resistance at 0.6708 (May 16 high) into a support. It is also being supported by the 50-period moving average while the Choppines index has moved above the oversold level.
The outlook for the Australian dollar is bullish, with the next level to watch being at 0.6817, the highest point on May 10. The support for this trade is at 0.6708.
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