Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6625.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6600 and a take-profit at 0.6650.
- Add a stop-loss at 0.6500.
The AUD/USD exchange rate pulled back during the American and Asian session after the US published another set of strong economic numbers. The pair retreated to a low of 0.6585, a few points below this week's high of 0.6620.
Fed rate cuts to wait
The Federal Reserve hinted that it will start cutting interest rates this year in its last monetary policy meeting. The dot plot pointed to at least three cuts as inflation rate continued falling. At the time, most analysts estimated that the first interest rate cut would come in March.
Recently, however, the US has published economic numbers that forced most analysts to change their view about the initial rate cut. For example, the recent jobs numbers revealed that the economy added over 200k jobs while the jobless rate remained at 3.7%.
A separate report showed that the country’s inflation remained steady in December as housing costs rose. The headline CPI rose from 3.2% to 3.4% while core inflation came in at 3.8%. There is a likelihood that inflation rose again in January as the crisis at the Red Sea pushed shipping costs higher.
On Wednesday, a report by S&P Global showed that the flash manufacturing and services PMI rebounded in January. The manufacturing PMI rose to 50.3, higher than the expected 47.9 while the services PMI rose to 52.9. These numbers mean that the bank economy is doing well, meaning that the Fed has no reason to cut in January or March.
The situation is different in Australia where the mining sector is struggling as the prices of key commodities like natural gas and iron ore pulled back. China, its biggest buyer is also going through a rough patch while the services PMI rose to 47.9, remaining in a contraction phase. As such, there is a possibility that the RBA will start cutting rates earlier than the Fed.
AUD/USD forecast
The AUD/USD pair attempted to bounce back on Wednesday but suffered a harsh reversal after the strong US PMI report. On the 4-hour chart, the pair has formed a descending flag pattern. In most periods, this pattern leads to a bearish breakdown.
The pair has moved below the 50-period moving average and the psychological point at 0.6600. Also, tbe awesome oscillator bars are slightly above the neutral line. Therefore, because of the flag pattern, the pair will likely continue falling ahead and after the first estimate of US GDP numbers. The key point to watch will be at 0.6500.
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