Bearish view
- Sell the AUD/USD and set a take-profit at 0.6300.
- Add a stop-loss at 0.6425.
- Timeline: 1 day.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6450.
- Add a stop-loss at 0.6350.
The AUD/USD pair continued its downward trend as inflation jitters rose and as investors embraced a risk-off sentiment. The Aussie retreated to a low of 0.6374, a few points above the lowest level this year.
US dollar as a safe haven
The AUD/USD pair has been in a strong downtrend in the past few months as investors and traders flock to the safety of the US dollar. The dollar index, which measures the performance of the greenback against a basket of currencies, rose to $104.6, the highest level in over five months.
There are two main reasons why the greenback has jumped. First, the US has emerged as one of the best-performing major economies this year. It expanded by 2% in the second quarter and the Atlanta Fed expects it to grow by 6% in Q3.
Second, the price of crude oil has bounced back and entered a major bull market. Brent has soared to $90.6 while WTI has risen to $87. This performance means that inflation in the US will likely struggle to drop to Fed’s target of 2.0%. Therefore, there is a likelihood that the Fed will deliver at least one more hike this year.
The AUD/USD dropped even after the stronger-than-expected Australian GDP data. According to the statistics agency, the economy grew by 2.1% in Q2, higher than the median estimate of 1.7%. This growth was driven by capital expenditure and consumer spending.
Still, analysts expect that the Reserve Bank of Australia will maintain its interest rates at 4.1% for the rest of the year. The bank hinted about that in this week’s meeting.
The AUD/USD pair also reacted to the weak trade data from China and Australia. Looking ahead, the key events will be statements by several Fed officials and the bank’s balance sheet report.
AUD/USD technical analysis
The AUD to USD exchange rate has been in a strong bearish trend in the past few weeks. This decline saw it drop to the key support at 0.6363, the lowest level on August 17th and September 5th.
The pair also slipped below the important support at 0.6460, the lowest level on May 31st. It has also moved below the 50-day moving average while the Relative Strength Index (RSI) has moved to 40. It has formed a bearish flag pattern. Therefore, the pair will likely have a bearish breakout to 0.6300.
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