Bullish View
Buy the AUD/USD and set a take-profit at 0.7450.
Add a stop-loss at 0.7280.
Timeline: 1-2 days.
Bearish View
Set a sell-stop at 0.7300 and set a take-profit at 0.7200.
Add a stop-loss at 0.7400.
The AUD/USD pair was relatively unchanged on Monday morning even as tensions between Australia and China rose. The pair is trading at 0.7330, which is slightly above last week’s low of 0.7278. The pair is about 3% below the highest level in October.
Australia and China Tensions
China and Australia have a close trade relationship. China buys more than 70% of all goods sold by Australia. At the same time, the country buys most of the services that Australia offers including education and tourism.
However, in the past few years, the relationship between the two countries has been relatively difficult. The situation worsened when Australia supported an investigation into the cause of Covid-19. Since then, China has implemented a ban on Australian coal and put limits on other goods.
The relationship worsened during the weekend when Australia’s defence minister pledged that the country will support the US in a campaign to defend Taiwan. This happened as China’s millitary continues its operations near Taiwan.
The statement came about two months after the country angered China by teaming up with the US and UK in a trilateral security partnership. The deal will help Australia build nuclear-powered submarines in a bid to counter China.
Meanwhile, the AUD/USD pair held steady in reaction to a statement that Xi Jinping and Joe Biden will have a virtual meeting soon. The meeting will seek to iron out some of the current challenges between the two countries.
The Australian economic calendar will be relatively muted this week. The only major item to watch will be the latest minutes by the Reserve Bank of Australia (RBA) that will come out on Tuesday. The pair will also react to the latest US retail sales and the rising US and Australian bond yields.
AUD/USD Forecast
The four-hour chart shows that the AUD/USD pair moved below the lower side of the rising channel shown in purple a few weeks ago. The pair has dropped sharply since then. As a result, it moved below the short and longer moving averages.
It has also moved slightly above the 61.8% Fibonacci retracement level while the MACD has made a bullish crossover pattern. Therefore, the pair will likely continue the relief rally in the near term. This will likely see it retest the 38.2% retracement level at 0.7410.
