Bearish View
Set a sell-stop at 0.7230 and a take-profit at 0.7150.
Add a stop-loss at 0.7300.
Timeline: 1-2 days.
Bullish View
Set a buy-stop at 0.7240 and a take-profit at 0.7350.
Add a stop-loss at 0.7160.
The AUD/USD declined as investors reflected on the growing risks of a US government shutdown and stagflation. It is trading at 0.7240, which was below this week’s high of 0.7310.
Stagflation and Government Shutdown
The US dollar rose against most currencies in the overnight session. This price action was mostly because of the rising bond yields in the United States. The 10-year yield rose to a three-month high of 1.55% while the 30-year yield rose to 2%.
The trend in the Treasury market was mostly because of the fears that the Federal Reserve will start tapering asset purchases earlier than expected. In its decision last week, the Fed’s dot plot showed that the central bank will do about 7 rate hikes by 2024. Still, there is a risk that a period of high inflation coupled with low inflation will remain for a while.
On Tuesday, data published by the Conference Board showed that consumer confidence declined to a seven-year low in September. This drop happened as the number of Covid-19 cases and inflation rose.
The AUD/USD also declined because of the ongoing power challenge in China. The country is facing a significant power shortage. As a result, the government has asked some companies to reduce their demand for power. This trend could lead to major global shortages and supply disruptions. It will also cause the Chinese economy to slow down. In most cases, Australia does well when China’s economy is growing.
The AUD/USD will react to the latest American pending home sales numbers. The data is expected to show that the number of pending sales jumped substantially in August as demand for homes rose. Recent numbers have revealed that building permits and housing starts have all jumped. And yesterday, numbers showed that home prices jumped to a record high in August.
AUD/USD Forecast
The four-hour chart shows that the AUD/USD pair formed a double-top pattern at 0.7315. The lower part of this pattern was at 0.7240. In price action analysis, the double-top pattern is usually a bearish sign. The pair is also between the middle and lower lines of the Bollinger Bands. It is also slightly below the 25-day moving average while the MACD is below the neutral level. Therefore, the pair will likely keep falling as the US dollar strength remains. If this happens, the next key level to watch will be at 0.7150.
