Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6200.
- Add a stop-loss at 0.6350.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6340 and a take-profit at 0.6400.
- Add a stop-loss at 0.6250.
The Australian dollar continued its strong sell-off even after the strong consumer inflation data. The AUD/USD pair retreated to the psychological level of 0.6300, much lower than this week’s high of 0.6385.
Australia inflation and US bonds
The AUD/USD exchange rate recoiled sharply after Australia published strong inflation data. According to the Australia Bureau of Statistics (ABS), the headline consumer price index (CPI) rose from 0.8% in Q2 to 1.2% in Q3, higher than the median estimate of 1.1%.
This inflation figure translated to a year-on-year increase of 5.4%, bigger than the expected 5.3%. The closely watched trimmed and weighted mean CPI figures rose by 5.2%, which is higher than the RBA’s target of 2.0%.
Therefore, these numbers mean that the RBA could be under pressure to restart rate hikes in its November’s meeting. It has left rates intact in the past few meetings.
The AUD/USD pair slipped after another set of strong economic data from the United States. On Tuesday, numbers revealed that the flash manufacturing and services PMIs moved back to 50 and above in October.
On Wednesday, another report showed that the housing sector was doing well. New home sales rose to an annualised rate of 759k, higher than the median estimate of 659k. This increase was also higher than the previous 676k.
America’s housing sector has done well despite the soaring interest rates in the US. The Fed has pushed rates from zero during the pandemic to 5.50%. Looking ahead, the key economic data to watch on Thursday will be the upcoming US GDP and durable goods order numbers.
Economists expect the data to show that the economy expanded by 4.2% in the third quarter after growing by 2.1% in Q2. Goldman Sachs analysts expect the number to come in at 4.7%.
AUD/USD technical analysis
The AUD/USD pair has been in a strong downward trend in the past few months. It has formed a descending triangle pattern, which is one of the most bearish sign. The pair has dropped below the 50-period moving average.
At the same time, the MACD has moved below the neutral point while the Relative Strength Index (RSI) has moved below the neutral point. Therefore, the pair will likely continue falling as the US dollar index continues rising. This view will be confirmed if the price moves below the support at 0.6288.
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