Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6900.
- Add a stop-loss at 0.6765.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6800 and a take-profit at 0.6750.
- Add a stop-loss at 0.6900.
The AUD/USD exchange rate bull run gained steam this week as the US dollar sell-off gained steam. The pair rose to a high of 0.6845, its highest point since July. It has spiked from the October low of 0.6270.
Aussie demand rises
The Australian dollar continued rising against the US dollar as traders embraced a risk-on sentiment. This view continued since last Friday when the US published weak Personal Consumption Expenditure (PCE) data.
Data by the Bureau of Economic Analysis (BEA) showed that the core PCE rose by 0.1% from October. It rose by 3.2% from a year ago. Most importantly, on a six-month annualized basis, the figure rose by 1.9%, lower than the Fed target of 2.0%.
Economists expect the Fed to start cutting interest rates in March since there are signs that the economy is slowing. The most recent data revealed that the economy expanded by 5.2% in the third quarter. A closely watched gauge by Atlanta Fed estimates that the economy grew by 2.3% in the fourth quarter.
The AUD/USD pair has also risen because traders expect the Reserve Bank of Australia (RBA) could still hike rates in February. The most recent minutes showed that most officials considered hiking rates in its December meeting.
As such, there will be divergence between the Fed and the RBA, especially if Australia’s inflation remains stubbornly high. The most recent data revealed that the country’s inflation eased to 4.9% in October, more than double the bank’s target of 2.0%.
There will be no major economic data from Australia and the US on Thursday. The only data to watch will be the latest US initial and continuing jobless claims numbers. The US will also publish the weekly oil inventories data.
AUD/USD technical analysis
The Australian dollar continued rising as the risk-on sentiment continued. It rose to a high of 0.6850, its highest point since July 14th. The pair remained above the 50-day and 25-day Exponential Moving Averages (EMA), which is a bullish sign.
Meanwhile, the Stochastic Oscillator moved to the extreme overbought level while the Average Directional Index (ADX) rose to 40. The ADX is an indicator that measures a trend’s strength.
Therefore, the outlook for the pair is still bullish, with the next reference level to watch being at 0.6900. The stop-loss of this trade is at 0.6770.
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