Bearish View
- Sell the AUD/USD and add a take-profit at 0.7440.
- Add a stop-loss at 0.7540.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.7500 and a take-profit at 0.7550.
- Add a stop-loss at 0.7450.
The AUD/USD pair declined sharply on Tuesday as investors reflected on the falling US Treasury yields and the latest RBA interest rate decision. The pair dropped to 0.7486, which was about 1.50% below the highest level on Tuesday.
RBA Starts Unwinding QE
The Reserve Bank of Australia concluded its meeting on Tuesday and decided to leave interest rate unchanged at 0.10%. In its statement, the bank hinted that it will start hiking rates in 2024, later than other central banks. The markets believe that the RBA will start hiking in 2023 or even 2022 based on how fast the economy recovered.
The bank also took the first steps of unwinding the large asset purchase program. It did this by lowering its weekly asset purchases from A$5 billion to A$4 billion because of the overall improved economic situation in the country. The RBA also maintained its yield curve control program, where it is guiding the 2024 bond yields.
The AUD/USD is also reacting to the relatively strong Services PMI data. According to the Australian Industry Group (AIG), the Services Index declined from 61.2 in May to 57.8 in June. This decline was attributed to the recent COVID-19 cases that led to travel restrictions in some states.
The pair is also falling as US bond yields drop. The yield on the 10-year bond declined to 1.36% on Tuesday. This decline was relatively lower than the year-to-date high of 1.77%. The decline is a sign that investors expect the Fed to maintain a relatively dovish sentiment for a longer period than expected. Yields declined after the recent US non-farm payrolls data. Analysts believe that the strong labor market will not influence the Fed to shift its policy.
AUD/USD Technical Analysis
The two-hour chart shows that the AUD/USD pair declined sharply on Tuesday after the RBA decision. The pair fell from a high of 0.7600 to 0.7482. It also moved below the 25-day and 15-day volume-weighted moving averages (VWMA). The pair has also moved below the middle line of the descending channel shown in green while the Relative Strength Index (RSI) has moved from 78 to 38. It has also formed a small bearish flag pattern. Therefore, the pair will likely keep falling as bears target the lower side of the channel at 0.7443.
