Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6600.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6565 and a take-profit at 0.6650.
- Add a stop-loss at 0.6500.
The AUD/USD pair retreated after the second interest rate decision by the Reserve Bank of Australia (RBA). It has dropped for three straight days as attention now shifts to the next Federal Reserve meeting. The Aussie fell to 0.6556 against the US dollar from this month’s high of 0.6667.
RBA and Fed decision
The AUD/USD pair retreated on Monday after China delivered encouraging industrial production report. In a statement, the country’s statistics agency revealed that production rose by 7% in February after rising by 6.8% in January. Fixed asset investments jumped by 4.2%.
These are important numbers because of the important relationship between Australia and China, which handle billions of dollars in trade every year. They signaled that China’s economy was starting to recover.
The pair also retreated after the second interest rate decision by the RBA. As was widely expected, the bank left interest rates unchanged at 4.35%, where they have been at in the past few months.
In its statement, the bank said that Australia’s inflation remains significantly high and that higher interest rates were needed. It did not signal when it will start cutting interest rates but analysts are now predicting about 2 cuts this year.
Looking ahead, the AUD/USD pair will react to the upcoming Fed meeting, which will kick off on Wednesday. Economists expect that the Federal Open Market Committee (FOMC) will also leave rates unchanged between 5.25% and 5.50%.
There is a high possibility that the Fed will point to higher-for-longer interest rates since inflation is still sticky. The headline Consumer Price Index (CPI) showed that the headline CPI rose to 3.1% in February while core CPI soared to 3.8%.
The key data to watch on Tuesday will be the upcoming building permits and housing starts numbers. Building permits are expected to come in at 1.5 million while housing starts will be 1.43 million.
AUD/USD technical analysis
The 4H chart shows that the AUD/USD exchange rate continued falling after the RBA interest rate decision. It has crossed the 50-period moving average and formed a bearish flag pattern. In most cases, the flag pattern is one of the most bearish signs in the market.
The MACD indicator has moved below the neutral point while the Money Flow Index (MFI) moved to the oversold level. Therefore, the pair will likely have a bearish breakout in the coming days, with the next level to watch at 0.6500.
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