Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6440.
- Add a stop-loss at 0.6284.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6330 and a take-profit at 0.6285.
- Add a stop-loss at 0.6400.
The AUD/USD exchange rate bounced back during the American and Australian sessions even as risks in the market eased. The pair rose to a high of 0.6341, a strong recovery after it plunged to a low of 0.6288.
Bond yields retreat
The focus among investors has been on the bond market, which has gone through a major turmoil in the past few months. On Monday, the closely watched 10-year Treasury yield soared to the important resistance of 5.0%.
It then pulled back after Bill Ackman, a billionaire hedge fund manager, said that he was no longer short the asset. He noted that there was too much risk in the market and that the US economy was weaker than what official numbers suggested.
In the aftermath, the 10-year yield dropped to 4.83% while the 30-year retreated to 4.975%. The spread between the 10 and 2-year bond yields has narrowed from -100 to less than -40, pointing to a potential recession.
US bonds have sold off in the past few months as the Federal Reserve pointed to more rate hikes in the coming months. The bank has already hiked interest rates from 0% during the pandemic to 5.25%.
There will be no major macro data on Tuesday that will impact the AUD/USD pair. The only key report to watch will be the flash manufacturing and services PMI data from the US. Economists see the data coming in at 49.5 and 49.9, respectively, signaling that the sectors are in a contraction mode.
The other key catalyst will be a statement by Michele Bullock, the head of the Reserve Bank of Australia (RBA). Her statement will come ahead of the next Australian consumer inflation data. Jerome Powell, the Fed Reserve Chair, will also talk on Wednesday.
AUD/USD technical analysis
The 4H chart shows that the AUD/USD bounced back after reaching the key support level at 0.6284. This was a notable price since it was the lowest swing on October 2nd and 16th. As a result, it has formed a triple-bottom pattern.
The pair has moved at the 25-period and 50-period moving averages while the Relative Strength Index (RSI) has moved above the neutral point at 50. It is also about to retest the important resistance at 0.6358, the lowest swing in August and September 6th.
Therefore, the outlook for the pair is neutral for now. More upside will be confirmed if the price moves above the resistance at 0.6358. If this happens, the key level to watch will be at 0.6442. The alternative scenario is where the pair drops and retests 0.6284.
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