Bullish View
Set the buy-stop at 0.7280 and a take-profit at 0.7350.
Add a stop-loss at 0.7200.
Timeline: 1-2 days.
Bearish View
Set a sell-stop at 0.7200 and a take-profit at 0.7100.
Add a stop-loss at 0.7300.
The AUD/USD pair remained in a tight range in early trading as investors reflected on the ongoing economic challenges in both Australia and China. The pair is trading at 0.7254, which was slightly below last week’s high of 0.7320.
Iron Ore Prices
After months of delivering substantial gains, the prices of iron ore and other key commodities have retreated substantially in the past few days. The metal has declined by more than 50% from mid-July as investors react to the ongoing crisis in China. For one, the Chinese government has already ordered its steel producers to slow their output in a bid to stabilize prices.
At the same time, the market has reacted to the ongoing Evergrande crisis and its impact on the broader economy and the commodities sector. The company failed to honor its debt obligations last week and the government has asked local governments to prepare for the firm’s collapse. Therefore, investors are worried about the looming iron ore surplus as demand wanes.
Iron ore prices are important to Australia because of the volume it exports every year. The country exports iron ore worth more than $117 billion every year, making it the biggest foreign exchange earner. Also, the metal’s price declines, there is a possibility that other commodity prices will drop as well.
Later today, the AUD/USD will react to the latest durable goods order numbers from the United States. These numbers are important because they provide more details about the state of the economy. They will come a few days after the Federal Reserve left interest rates unchanged last week. The dot plot pointed to between 6 and 7 interest rate hikes. The pair will also remain on edge as investors refocus on the potential of an American government shutdown.
AUD/USD Technical Analysis
The AUD/USD broke out above the descending channel and rose to a high of 0.7315 after the Fed decision. The pair then retreated on Friday after Evergrande failed to make its instalment payment. It is now trading at 0.7254, which is slightly above the upper line of the descending channel. It is also along the middle line of the Bollinger Bands while the Relative Strength Index (RSI) is at the middle line of the Bollinger Bands.
Therefore, the pair will likely rebound later this week. That is because it has formed a break and retest pattern on the 4H chart.
