Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6380.
- Add a stop-loss at 0.6520.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6475 and a take-profit at 0.6525.
- Add a stop-loss at 0.6400.
The AUD/USD pair was little changed on Wednesday as concerns about inflation continued and slow growth continued ahead of the Fed decision. The pair was trading at 0.6455, a few points above this week’s low of 0.6352.
Fed and RBA inflation concerns
The Federal Reserve, Reserve Bank of Australia (RBA), and other global central banks are increasingly concerned about inflation as oil prices jump. Brent, the international benchmark, has risen to $95, the highest level in eleven months.
The concern is that these trends will push inflation higher at a time when economic growth is slowing. Recent data shows that inflation is ticking upwards. In the US, the headline consumer price index (CPI) rose for the second straight month in August as gasoline prices jumped. It rose to 3.7%, the highest point in months.
The RBA minutes published on Tuesday revealed that the bank was concerned about inflation when it made its rates decision earlier this month. The bank ultimately decided to leave rates unchanged and hinted that it could resume hikes.
In a statement on Tuesday, Michelle Bullock, the new RBA Governor, said that her goal will be to bring inflation to the target of 2% while keeping employment at the highest point on record. This will be a tough call with Australia’s petrol prices sitting at A$2 per litre.
The next key catalyst for the AUD/USD exchange rate will be the upcoming interest rate decision by the Federal Reserve. Economists polled by Reuters expect the Fed to leave rates unchanged between 5.25% and 5.50%, the highest level in more than 2 decades.
The Fed will pause and then hint that it will hike rates later this year since inflation remains high. This pause will be needed because of the emerging challenges to the economy, For example, UAW workers have threatened to strike for as long as it takes.
AUD/USD technical analysis
The Australian dollar has been in a slow bullish trend after bottoming at 0.6356 earlier this month. This recovery pushed it to a high of 0.6477, where it has formed a small double-top pattern. It has also formed an ascending channel while the Relative Strength Index (RSI) has been rising.
Therefore, the outlook for the pair is bearish, with the next reference level to watch being at 0.6380, the lowest point in August.
Ready to trade our free Forex signals? Here are the best forex platform Australia to choose from.