Bearish View
Sell the AUD/USD and add a take-profit at 0.7290 (July low).
Add a stop-loss at 0.7400.
Timeline: 1-2 days.
Bullish View
Set a buy-stop at 0.7370 and a take-profit at 0.7450.
Add a stop-loss at 0.7300.
The AUD/USD pair retreated on Monday morning as the number of COVID cases in Australia continued rising. The pair also retreated after the biggest M&A deal in Australia was announced as investors wait for the Reserve Bank of Australia (RBA) interest rate decision.
Australian dollar under pressure
The AUD/USD struggled as the Australian outbreak continued. Greater Brisbane recorded 13 new cases, pushing authorities to extend the lockdown by a week. New South Wales confirmed more cases while Victoria tightened its New South Wales border bubble.
Still, the manufacturing sector did relatively well in July, according to the latest data by Markit and the Australian Industry Group (AIG). According to AIG, the manufacturing PMI declined from 63.2 in June to 60.8 in July. Similarly, according to Markit, the PMI declined from 58.6 to 56.9. While the two numbers show a decline, the industry did well since a PMI reading of 50 and above is a sign of expansion.
Still, the manufacturing sector represents a small portion of the Australian economy. Therefore, analysts expect that the services PMIs that will come out on Wednesday will show that business activity retreated.
The AUD/USD declined even after the biggest M&A activity in Australia. In a statement, Square confirmed that it would acquire AfterPay in a deal valued at about $29 billion. This will be the biggest Australian deal after Unibail-Rodamco acquired Westfield for $20 billion in 2017. As a result, more foreign capital will likely flow to Australia’s tech sector.
The biggest catalyst for the pair this week will be the RBA interest rate decision scheduled for Tuesday and the US non-farm payrolls scheduled for Friday. With Covid cases in Australia rising, there is a possibility that the RBA will sound dovish when it concludes its meeting on Tuesday.
AUD/USD technical forecast
The two-hour chart shows that the pair found a strong resistance at 0.7415 last week. It then declined and is currently trading at 0.7340. The price has moved below the 23.6% Fibonacci retracement level. It also declined below the 25-day and 15-day exponential moving averages (EMA). Further, the Relative Strength Index (RSI) moved to the neutral level of 38. Therefore, the pair’s path of least resistance is lower since investors anticipate a dovish RBA on Tuesday. If this happens, the next key level to watch will be 0.7290, which was the lowest level in July.
