Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6625.
- Add a stop-loss at 0.6500.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6550 and a take-profit at 0.6500.
- Add a stop-loss at 0.6625.
The AUD/USD exchange rate was flat on Monday as traders reflected on the actions by the Federal Reserve and the Reserve Bank of Australia (RBA). The pair was trading at 0.6565, where it has been stuck in the past few days. This price is much higher than this month’s low of 0.6442.
RBA and Federal Reserve actions
The AUD/USD pair has remained in a tight range recently as the market reacted to last week’s minutes by the Fed and the RBA. RBA minutes showed that the committee was concerned about the state of inflation in the country.
The members considered hiking rates by 0.25% in its first meeting of the year. They also left the door wide open for another rate hike since they expect inflation to take about two years to move to its 2% target. The Australian Bureau of Statistics (ABS) will publish its monthly CPI indicator on Wednesday.
Meanwhile, in the US, the window of a rate cut is closing as the country continues publishing strong numbers. The most recent report showed that headline inflation rose to 3.1% in January while core CPI stood at 3.8% or double the Fed’s target of 2.0%.
This explains why US bond yields have rallied in the past few weeks. The 10-year and 30-year yields have jumped to over 4% while the spread between the 10-year and 2-year has widened to over 44 basis points.
The Fed’s challenge is that there are signs that the economy is weakening. Data released recently showed that retail sales and industrial production weakened in January.
The next important economic data to watch will come out on Friday when the US statistics agency releases the latest PCE data. This is an important report since it is the Fed’s favorite inflation gauge. The other numbers to watch will be US GDP, consumer confidence, and new home sales. Australia’s retail sales will come out on Wednesday.
AUD/USD technical analysis
The AUD/USD exchange rate continued to consolidate on Monday as traders waited for the latest US inflation numbers. It was trading at 0.6565, which is a few points above the 23.6% Fibonacci Retracement level. The pair remains slightly above the 25-period and 50-period moving averages.
It has also formed what resembles an inverse head and shoulders pattern and an ascending channel shown in black. The MACD has remained above the neutral point. Therefore, the pair will likely remain in this range on Monday. In this case, the key support and resistance points to watch will be at 0.6525 and 0.6600.
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