The path of the least resistance for the pair is bearish.
Sell the AUD/USD and add a take-profit at 0.7250.
Add a stop-loss at 0.7370.
Timeline: 1 day.
Set a buy-stop at 0.7330 and a take-profit at 0.7400.
Add a stop-loss at 0.7250.
The AUD/USD pair crashed to the lowest level since November last year as investors reacted to the deteriorating condition in Australia. It is trading at 0.7310, which is about 9% below the highest level this year.
Australia COVID Outbreak
In 2020, Australia was praised for its COVID-19 response. The country saw significantly fewer COVID cases than other countries like the UK and Germany.
Now, the country is battling a new COVID wave and the government is about 2 months late on its vaccination drive. Earlier today, New South Wales recorded about 110 new cases while Victoria recorded 22 new local cases.
As a result, the two states have announced some lockdown measures while the government has launched a rescue package for businesses. Therefore, investors are concerned that the strong Australian recovery will get undone as business activity slows down.
The AUD/USD has also struggled because of the overall performance of commodities. With the Delta variant cases rising significantly, there are concerns that commodity demand will be affected. As a result, the prices of most commodities has struggled this week. Crude oil has dropped by almost 10% while copper and iron ore prices have retreated. The Australian dollar is often seen as a proxy for commodity prices because of its vast natural resources.
The pair is also reacting to the recent Reserve Bank of Australia (RBA) minutes published on Tuesday. The minutes showed that the bank does not see a rate hike coming before 2024. This is a relatively dovish sentiment considering that other central banks like the Bank of Canada are already pricing in rate hikes in 2022.
The Federal Reserve has also signalled that it will hike its rates in 2023. Still, the bank will likely turn more dovish considering that the meeting happened before the worst of the Sydney outbreak.
The Australian dollar has been in a steep downward momentum in the past few weeks. On Monday, it managed to move below the important support level at 0.7400, where it had struggled moving below before. It also moved below the 25-day and 15-day moving averages while the Average Directional Index (ADX) has rose to the highest level in months. This is a signal that the bearish trend is relatively strong. Therefore, the path of the least resistance for the pair is bearish.