Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6670.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6650 and a take-profit at 0.6650.
- Add a stop-loss at 0.6550.
The AUD/USD pair continued slipping after the hawkish statement by the Federal Reserve chairman and after encouraging Australia’s inflation data. The pair, which peaked at 0.6900 last week, tumbled to a three-week low of 0.6600.
RBA and Fed to hike rates
The Australian dollar continued its downward trend as investors assessed the latest consumer inflation data. According to the statistics agency, the headline consumer price index dropped from 6.8% in April to 5.6% in May. The decline was better than the median estimate of 6.1%.
Despite the improving situation, analysts believe that the Reserve Bank of Australia (RBA) will continue hiking interest rates when it meets next week. Analysts have penciled for another 0.25%, which will push rates to 4.35%. The rate hike will be necessary since the rate of inflation is still above the bank’s target of 2.0%.
The AUD/USD pair also dropped as the US dollar index after Jerome Powell hinted that the Fed has more room to hike rates. Speaking in Portugal at an ECB summit, he said that the recent inflation trends were encouraging. But he also believes that the Fed has more room to hike interest rates in the coming meetings.
His view is supported by the resiliency of the American economy. The unemployment rate remains at a multi-decade low while inflation is still above the 2.0% target. Recent data revealed that the country’s housing market is stable as demand continues to rise. On Tuesday, numbers revealed that the house price index held quite well in April.
Meanwhile, the closely-watched consumer confidence figure also rose in June. Therefore, the Fed believes that it can engineer a soft landing by gradually hiking rates. The key data to watch on Thursday will be the latest US GDP data.
AUD/USD technical analysis
The Australian dollar continued falling as concerns of higher rates continued. As it slipped, the pair moved below the key support level at 0.6666, the lowest point on June 23rd. The pair’s 25-period and 50-period moving averages made a bearish crossover.
The Average Directional Index, which is a good measure of a trend’s strength, rose to 40 while the Relative Strength Index fell to the oversold level. Therefore, the pair will likely continue falling, with the next support level being at 0.6500. In the immediate near term, however, a retest of the resistance at 0.6666 cannot be ruled out.
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