Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6350.
- Add a stop-loss at 0.6495.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6350.
The AUD/USD pair remained under pressure this week as the US dollar strength continued. The exchange rate was trading at 0.6417, where it has been at since last week. This price is ~7% below its highest level in July.
Fed, RBA, and China concerns
The Australian dollar has been in a strong bearish trend in the past few weeks because of the rising concerns about China, Australia, the Federal Reserve, and the Reserve Bank of Australia.
China, Australia’s biggest trading partner, is slowing dramatically and analysts believe that the situation will get worse. This view was confirmed on Tuesday when BHP, the biggest miner in the world, published weak financial results, forcing it to slash its dividend.
Therefore, there is a likelihood that China will import less goods from Australia this year. Also, the price of most commodities like copper, iron ore, and coal has dropped in the past few months.
The pair also reacted to the rising concerns that the Federal Reserve will continue hiking interest rates in September. This explains why American bond yields have jumped to their highest level in more than a decade.
Meanwhile, the falling Aussie will make it difficult for the Reserve Bank of Australia (RBA) to fight inflation. That’s because a weaker currency makes it more expensive for Australian companies to import products. A recent study showed that the Aussie sell-off has helped push petrol prices to A$2 per liter.
The most recent economic numbers showed that the country’s inflation dropped to 6% in Q2, higher than the RBA’s target of 2.0%. Therefore, there is a likelihood that the bank will hike interest rates in its upcoming meeting.
The next AUD/USD data to watch on Wednesday will be the upcoming US new home sales and flash PMI numbers. It will also react to the upcoming Jackson Hole summit.
AUD/USD technical analysis
The AUD/USD pair has been in a bearish trend in the past few weeks. It has already moved below the important resistance point at 0.6458 (May 31st). The pair retested this level on Tuesday, in what is known as a break and retest pattern. It has moved below the 50-period moving average and formed a bearish flag pattern.
Therefore, the pair will likely have a bearish breakout in the coming days, with the next key support to watch is at 0.6350.
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