Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6655.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6640 and a take-profit at 0.6725.
- Add a stop-loss at 0.6575.
The AUD/USD pair tumbled to the lowest level since July 6 as the market reflected on this month’s interest rate decision by the Reserve Bank of Australia (RBA). The pair retreated to a low of 0.6615, ~4.15% below the highest point in July.
End of RBA rate hike?
The Australian dollar declined sharply after the RBA caught the market by surprise by leaving interest rates unchanged. A poll of economists by Reuters showed that most analysts were expecting the bank to hike rates by 25 basis points to 4.35%.
The bank noted that the economy was slowing and that inflation remained stubbornly high. In his statement, the RBA governor said that the bank needed more time to assess the trends on inflation. It has already hiked by 400 basis points since May last year.
The bond market now expects that the RBA will leave rates at the current range for a while. However, the bank signaled that more rate hikes will be coming if inflation remains significantly higher than the 2% target. In a statement, an analyst at the Commonwealth Bank of Australia said:
“We had thought the RBA would raise the cash rate in August due to lingering concerns around the strong labor market and upside risks to inflation and wages growth. It would take an upside surprise to the economic data from here, namely on prices and/or wages, for the RBA to shift its assessment of the outlook.”
The AUD/USD pair will react to the upcoming job numbers from the US. ADP will publish the latest private non-farm payrolls (NFP) numbers. Economists expect the numbers to show that the economy added 188k jobs in July after adding 497k in June. The report will come two days ahead of the upcoming US non-farm payrolls (NFP) data.
AUD/USD technical analysis
The AUD/USD pair retreated to the important support level at 0.6598, the lowest level on June 29. The pair dropped below the support at 0.6700, the highest point on July 4th. It has moved below the 50-period moving average and is at the lower side of the Donchian Channels.
The Stochastic Oscillator has moved below the oversold level. Therefore, the pair will likely continue falling as sellers target the key support at 0.6500. A move above the key resistance point at 0.6645 will invalidate the bearish view.
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