Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6720.
- Add a stop-loss at 0.6600.
- 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 0.6735.
The Australian dollar started December with a bang as the US dollar index (DXY) retreated. The AUD/USD pair surged to a high of 0.6675, its highest point since July. It has been in a strong uptrend after bottoming at 0.6270 in October.
RBA interest rate decision ahead
The Aussie has been one of the best-performing currencies in the past two months as it jumped by over 6.50%. This rally has coincided with the US dollar sell-off, which has dropped from $107 to about $103.
The Australian dollar has rallied after the Reserve Bank of Australia (RBA) demonstrated its independence thinking in its November meeting. While all major central banks decided to leave their interest rates unchanged, the RBA decided to hike them by 0.25%.
In several statements after the meeting, the new RBA governor left the door open for further rate hikes since inflation remains above its 2% target. Therefore, the AUD/USD pair will react to Tuesday’s RBA decision.
Most economists believe that the RBA will decide to leave rates unchanged at 4.35% in this meeting. The key catalyst for the pair will be its language on future rate hikes. If it insists on another hike, it will likely come in the first quarter of 2024.
The AUD/USD pair ignored the hawkish statement by Jerome Powell on Friday. He argued that it was premature to bet on rate cuts and pointed that the bank could still deliver another hike in the coming months.
Most economists and traders believe the Fed has ended its rate hike cycle now that inflation has dropped to 3.2%. There are also signs that the US economic growth is softening as interest rates remains at the highest point in decades.
The key economic data to watch this week will be the latest US non-farm payrolls (NFP) and services PMIs.
AUD/USD technical analysis
The Australian dollar continued its bullish trend ahead of the RBA decision. It has jumped above the 61.8% Fibonacci Retracement level on the 4H chart. The pair has also remained above the 50-period moving average while the Relative Strength Index (RSI) has pointed upwards.
It has also flipped the important resistance point at 0.6666 into a support. This was an important level since it was the second resistance of the Woodie pivot point. Therefore, the outlook for the pair is bullish, with the next point to watch will be at 0.6720, the third resistance.
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