Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6596.
- Add a stop-loss at 0.6700.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6670 and a take-profit at 0.6725.
- Add a stop-loss at 0.6600.
The AUD/USD exchange rate remained under intense pressure as investors repositioned for the upcoming interest rate decision by the Reserve Bank of Australia (RBA). The pair retreated to a low of 0.6622, the lowest level in almost three weeks.
Another RBA rate hike?
The AUD/USD pair tumbled last week after the latest monetary policy decision by the Federal Reserve. In it, the bank decided to hike interest rates by 0.25%, pushing them to the highest level in more than two decades. As a result, credit card, mortgage, and auto loan rates have jumped recently.
The decision was followed by the spectacular US GDP data, which showed that the economy remained resilient in the second quarter. It expanded by 2.4% in Q2 after growing by 2.0% in Q1, helped by higher fixed asset investments and government spending.
The US also published encouraging personal consumption expenditure (PCE) data. These numbers revealed that the PCE dropped to 3.1%, signaling inflation was still falling even as spending rose.
The next key catalyst to move the AUD/USD pair will be the upcoming interest rate decision by the Reserve Bank of Australia (RBA). Economists expect that the RBA will deliver another 0.25% rate hike. If this happens, interest rates will rise to 4.35%, the highest level in more than a decade.
Data published last week revealed that Australia’s inflation inched downward in the second quarter. Inflation dropped to 6.0% in Q2 compared to analysts’ estimates of 6.2%. The trimmed mean inflation dropped to 5.9%, which is still higher than the RBA estimate of 2.0%.
The Australian economy is softening dramatically in the past few months. Inflation has peaked while wage growth is not excessive.
AUD/USD technical analysis
The AUD/USD pair has been in a downward trend in the past few days. As it dropped, the pair moved below the key support level at 0.6705, the highest point on July 4th. The 25-period and 50-period moving averages have formed a bearish crossover.
At the same time, the Relative Strength Index (RSI) has moved slightly above the oversold level. The Stochastic Oscillator is also at the oversold point of 20. Therefore, the pair will likely continue ahead of the RBA decision. The next support point to watch will be at 0.6596, the lowest level in June.
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