Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6300.
- Add a stop-loss at 0.6415.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6380 and a take-profit at 0.6425.
- Add a stop-loss at 0.6300.
The AUD/USD exchange rate dropped for six straight days as the US dollar index (DXY) continued its rebound. The index was trading at $105.70 on Monday, which was higher than last week’s low of $104.85.
US risks remain
The AUD/USD pair continued its downtrend on Monday as investors focused on the rising risks in the United States. On Friday, Moody’s, one of the biggest rating agencies in the world, decided to lower its outlook for US debt.
The agency warned that risks to the US remained at an elevated level. It cited increased polarisation between Democrats and Republicans and the rising debt. The most recent data shows that the country’s total public debt surged to over $33.7 trillion.
This trend will continue as the Treasury Department has warned that it will borrow over $1 trillion in the next few months. Moody’s negative outlook came a few months after Fitch decided to slash the country’s credit rating.
This situation could worsen this week as the government funding runs out. While Speaker Johnson has unveiled a stop-gap funding deal, there are elevated risks that the government shutdown will happen.
There will be no major economic data from the US and Australia on Monday. Therefore, traders will focus on the actions by Moody’s and whether other rating agencies will act.
The other important event will be the upcoming US Consumer Price Index (CPI) data. Economists polled by Reuters believe that the country’s inflation continued falling in October.
Precisely, economists expect the data to show that the headline CPI dropped from 0.4% in September to 0.1% in October. This decline will translate to a YoY increase of 3.3%, also lower than the previous 3.7%.
The core CPI is expected to come in at 0.3% MoM and 4.1% on a YoY basis. There is a likelihood that inflation is still falling as the price of crude oil has dropped, with Brent falling to $81.70 and WTI moving to $77.35.
AUD/USD technical analysis
The AUD/USD exchange rate drifted downwards as risks to the US continued. It has crashed from this month’s high of 0.6522 to the important support level at 0.6350. The pair has also dropped below the key support at 0.6382, the highest swing on October 30th.
It has also slipped below the first support of the Woodie pivot point at 0.6410. The 50-period and 25-period moving averages have made a bearish crossover. Therefore, the pair will likely continue falling, with the next support level to watch being at 0.6315, the lowest point on October 31st.
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