Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6640.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6610 and a take-profit at 0.6700.
- Add a stop-loss at 0.6500.
The Australian dollar plummeted to the lowest level in over a month as metal prices retreated and as traders embraced a risk-off sentiment. The AUD/USD pair dropped below the important support at 0.6600. It has slipped by over 4.4% from its highest level this year.
Risk-off sentiment continues
The AUD/USD pair price continued its sell-off as a risk-off sentiment prevailed because of the tensions in the Middle East. US military hit more targets in Yemen, a move that has been criticized by some Republicans and Democrats. The new attacks happened after Houthi attacked a US merchant ship on Monday and a Greek one on Tuesday.
Therefore, there is a likelihood that this crisis will escalate just as the world is moving on from the Covid-19 pandemic and when the war in Ukraine is continuing. The crisis has already led to a sharp increase of shipping costs while energy prices have jumped.
Brent and WTI oil price benchmarks rose to $79 and $72.25 after Shell said that it will stop using the Red Sea to ship its oil. The implication of all this is that inflation could remain sticky this year, invalidating the case for interest rate cuts.
The bond market is sending this signal as the 10-year Treasury yields jumped to 4.08% while the 30-year spiked to 4.3%. US equities have also pulled back, with the Dow Jones and the Nasdaq 100 indices falling by over 0.80% on Tuesday.
The AUD/USD pair also declined as the price of key Australian exports fell. Iron ore price has dropped to $135 from the year-to-date high of $145. Other metals like copper, lithium, and nickel have also declined recently.
There are also concerns about the Chinese economy as the central bank deals with the ongoing deflation. A report by the statistics agency showed that the Chinese economy rose by 5.2% in 2023 even as the woes in the property sector continued.
AUD/USD technical analysis
The AUD/USD pair continued its downward trend as US and Australian bond yields rose. It moved to a low of 0.6580, its lowest point on December 13th. As it dropped, the pair flipped the key support at 0.6641 (January 5th low) into a resistance. The pair has moved to the 50% retracement point on the 4H chart.
It has also moved below the 50-period and 25-period Exponential Moving Averages (EMA). The Relative Strength Index (RSI) and the Stochastic RSI have all moved to the oversold level. Therefore, the outlook for the pair is bearish, with the next reference point to watch being at 0.6500.
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