Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6700.
- Add a stop-loss at 0.6620.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6650 and a take-profit at 0.6600.
- Add a stop-loss at 0.6700.
The AUD/USD pair surged as signs of Federal Reserve and Reserve Bank of Australia (RBA) divergence emerged. The pair jumped to a high of 0.6672, its highest point since December 4th. It has risen by over 6% from its lowest point in October.
RBA and Fed diverged
There are signs that the Fed and RBA are starting to diverge. In its rate decision last week, the RBA left interest rates unchanged and warned that it could hike them if inflation remained high. As a result, traders predicted that the bank would deliver its final hike in February.
The Federal Reserve, on the other hand, left rates unchanged and indicated that it would pause them at the 22-year high. The closely watched dot plot showed that the bank would deliver at least three rate cuts in 2024.
This was a change of tune since the Fed has not talked about rate cuts since 2021. In his statement, Powell also noted that the committee would still consider rate hikes if inflation remains stubbornly high.
The final Fed statement of the year came a day after the US published the latest inflation data. According to the Bureau of Labor Statistics, the headline Consumer Price Index (CPI) dropped slightly from 3.2% in October to 3.1% in November.
Core inflation remained at 4%, double the Fed’s target of 2.0%. Additional data released last Friday showed that the labor market was still strong as the unemployment rate dropped to 3.7% in November. The economy added over 190k jobs.
The US dollar index continued its downtrend after the Fed decision. Similarly, bond yields retreated while American equities continued rising.
The next key data from the United States will be the upcoming retail sales numbers. While these numbers are important, their impact on the US dollar will be limited.
AUD/USD technical analysis
The Australian dollar continued rising after the dovish Fed decision. It jumped to a high of 0.6672, its highest point since December 4th. The pair moved above the key resistance at 0.6620, the neckline of the double-bottom pattern at 0.6540. It rose above the 50-period and 25-period moving averages while the RSI has jumped.
Therefore, the outlook for the pair is bullish as traders target the key psychological level of 0.6700. This view will be confirmed if it moves above the year-to-date high of 0.6690.
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