Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6500.
- Add a take-profit at 0.6585.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6575 and a take-profit at 0.6640.
- Add a stop-loss at 0.6500.
The AUD/USD exchange rate continued falling this week as the focus shifted to the upcoming Reserve Bank of Australia (RBA) and Federal Reserve decisions. The pair retreated to 0.6560 as the US dollar index rally continued.
RBA and Fed decisions ahead
The US dollar index bounced back sharply last week after the country’s statistics agency published strong inflation numbers. A report on Tuesday revealed that the core inflation rose by 3.8% while the overall inflation rose to 3.1%.
Further data revealed that the Producer Price Index (PPI) rose by more than double on a MoM basis. This is a sign that inflation is getting more sticky as energy prices have remained at an elevated level in the past few months.
The price of Brent has jumped to $85 while West Texas Intermediate (WTI) has soared to $81. Also, other services like rent and insurance prices have continued rising. Therefore, the Fed will likely remain under pressure for a while.
The Fed will conclude its two-day meeting on Wednesday. In this case, the Fed will likely hold interest rates intact between 5.25% and 5.50%. It will also likely change its tune on when it will start cutting rates.
The AUD/USD pair also retreated as the price of iron ore continued falling. The price of iron ore has now dropped below $100 per tonne. This is an important metric since iron ore is Australia’s biggest export.
The next important news to watch will be the upcoming RBA decision set for Tuesday. The RBA will likely hold interest rates at 4.35%, where they have been in the past few months.
In its February’s decision, the RBA decided to leave rates unchanged. Its minutes showed that the RBA considered hiking rates since inflation remains above the 2% target. The RBA is expected to start cutting rates in September.
AUD/USD technical analysis
The AUD/USD exchange rate rose to a high of 0.6667 this month and has now pulled back sharply. It has slipped below the important support at 0.6585, its lowest swing on March 12th. The pair has also crossed the 25-period and 50-period moving averages and the 38.2% Fibonacci Retracement.
Further, the pair has formed a bearish pennant pattern, which is a popular sign of continuation. Therefore, the path of the least resistance for the pair is bearish, with the next target to watch being at 0.6500. However, a break above the resistance at 0.6585 will signal more upside.
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