Bearish view
- Sell the AUD/USD pair and set a sell-stop at 0.6640.
- Add a stop-loss at 0.6750.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6700 and a take-profit at 0.6750.
- Add a stop-loss at 0.6640.
The AUD/USD price was flat on Monday morning, in which will be a muted day without any major economic data and with the US markets being closed. The pair was trading at 0.6685, inside the range where it was last week.
Geopolitical risks
The AUD/USD pair reacted mildly to last week’s encouraging Australian inflation data. According to the bureau statistics, Australia’s inflation continued falling in November. The headline CPI dropped to 4.3% while the core CPI, which excludes the volatile food and energy prices, came in at 4.6%.
While these numbers are much higher than the RBA target of 2.0%, they mean that the bank will likely maintain rates at the current level instead of hiking. Some analysts, based on the last minutes, were expecting the bank to deliver at least one hike this year.
The pair also reacted to the ongoing geopolitical issues globally. On Saturday, Taiwan voted for a new president who has advocated for independence from mainland China. There is a likelihood that tensions in the region will remain in the coming months.
Tensions in the Middle East is increasing after the US and the UK attacked Houthi rebels who pledged to retariate. There is a likelihood that this could become another disruptive crisis as we saw when Russia invaded Ukraine.
Already, the price of crude oil has risen, with Brent hitting $80 a barrel. Shipping costs have continued rising, with the World Container Index hitting over $3,000. These events are important for the AUD/USD pair because of the impact on inflation.
Meanwhile, US released strong consumer inflation numbers. The report showed that inflation rose from 3.1% in November to 3.4% in December as it moved further from the Fed’s target of 2.0%. The labor market is also tight, leading to concerns that the Fed will not cut until June.
AUD/USD technical analysis
The AUD/USD pair has been in a tight range as the sell-off that started on December 28th fade. It has dropped from 0.6872 to below 0.6700, The pair has retreated below the 50-period Exponential Moving Average and the 23.6% Fibonacci Retracement point. It remains slighly above the key support at 0.6639, the lowest swing this year.
Therefore, the pair will likely remain in this range in a low-volume environment. It will then have a bearish breakout as sellers target the key support at 0.6640 later this week.
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