Bearish View
Sell the AUD/USD pair and set a take-profit at 0.7200.
Add a stop-loss at 0.7400.
Timeline: 1-2 days.
Bullish View
Set a buy-stop at 0.7340 and a take-profit at 0.7450.
Add a stop-loss at 0.7250.
The AUD/USD pair declined slightly during the American session as the market reflected on US retail sales data and the dovish Reserve Bank of Australia. The pair declined to 0.7310, which was slightly above last week’s low of 0.7280.
Strong US Dollar
The AUD/USD pair declined mostly because of the overall strong US dollar. The US Dollar Index, which weighs the performance of the greenback against a basket of currencies, has risen to the highest level since July last year.
The strength of the US dollar is mostly because analysts believe that the Fed will adopt a more aggressive interest rate policy. In its recent decision, the bank announced a $15 billion reduction in its quantitative easing program. It also left room for more tapering based on economic data.
These numbers have spoken. The economy has moved to full employment, which is defined as a period when unemployment drops below 5.0%. The recent data showed that the unemployment rate fell to 4.6%.
Meanwhile, recent inflation data signals that the Fed was wrong all along. Earlier this year, the bank said that inflation was transitory and that it will move back to 2.0%. Recent data showed that inflation rose to a 30-year high. And on Wednesday, data showed that the country’s retail sales soared in October.
The AUD/USD is also falling after the relatively dovish RBA. The minutes published on Tuesday showed that the Philip Lowe-led bank believes that it will hike interest rates in 2024. This is against what most analysts are expecting. With Australia’s economy doing well, many analysts believe that the bank will hike sooner than that.
In Australia, home prices have skyrocketed to record highs while the labor market is tightening. Inflation has also kept rising.
AUD/USD Forecast
On the four-hour chart, we see that the AUD/USD pair declined slightly in the overnight session. The pair dropped to a low of 0.7310, which is a bit below the upper side of the descending channel pattern. The pair has also moved below the middle line of the Bollinger Bands. Also, it has moved between the 61.8% and 50% Fibonacci retracement levels.
Therefore, the pair will likely keep falling as the market targets the key resistance level at 0.7200. This price is also along the 78.6% Fibonacci retracement level.
