Bullish view
- Set a buy-stop at 0.6525 and a take-profit at 0.6620.
- Add a stop-loss at 0.6550.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6480 and a take-profit at 0.6400.
- Add a stop-loss at 0.6565.
The AUD/USD pair went vertical in the American session after the encouraging US Consumer Price Index (CPI) data. It jumped to a high of 0.6500, the highest point in more than a week.
Risk-on sentiment continues
Investors have embraced a risk-on sentiment in the past few weeks. This sentiment started when the Fed made its interest rate decision. In it, it decided to leave interest rates unchanged and hinted that it would maintain its data dependence.
The sentiment then continued after the latest US Non-Farm Payrolls (NFP) data. The report showed that the economy added over 150k jobs in October while the unemployment rate jumped to 3.9%. Wages and participation rate continued falling during the month.
The weak jobs numbers, coupled with the latest consumer inflation numbers mean that the Fed is likely done hiking rates for now. The data revealed that the headline consumer inflation dropped from 0.3% in September to 0.0% in October. This decline led to a YoY drop of 3.2%.
Core inflation, which excludes the volatile food and energy products, also continued falling in October. It dropped to 4.0% YoY and 0.2% on a YoY basis. With the price of crude oil falling, there is a likelihood that the bank will not hike rates again.
All this explains why US stocks have surged hard in the past few weeks. It also explains why the US dollar index (DXY) and bond yields have plunged this month.
Looking ahead, the next important catalyst for the AUD/USD pair will be the upcoming US Producer Price Index (PPI) and retail sales data. Economists polled by Reuters expect the data to show that core PPI dropped to 0.2% while the headline PPI fell to 0.1%.
Other data are expected to show that the country’s retail sales dropped by -0.1% in October as inflation remained high.
AUD/USD technical analysis
The Australian dollar drifted upwards after the latest US inflation data. It has risen from a low of 0.6338 to a high of 0.6510. The pair has jumped above the 50-period and 25-period moving averages. It is also nearing the important resistance point at 0.6521, the highest point on November 6th and August 30th.
The Relative Strength Index (RSI) has jumped above the overbought point of 70. Therefore, more upside will be confirmed if it moves above the important resistance point at 0.6521. If this happens, the next point to watch will be at 0.6600.
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