Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.7400.
- Add a stop-loss at 0.7600.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.7540 and a take-profit at 0.7600.
- Add a stop-loss at 0.7480.
The AUD/USD pair continued its consolidation phase as investors reflected on the latest Australian budget and the upcoming RBA meeting. It is trading at 0.7515, where it has been in the past few days.
Australia budget
Scott Morrison’s government delivered a stimulative budget this week as it seeks to grow the economy while maintaining fiscal discipline.
The budget had some expansionary provisions. For example, the government slashed the tax on fuel that it charges per liter by half. The goal is that this will reduce the overall cost of living considering that oil prices have surged recently.
Further, the government will provide low and middle earning Australians a stimulus check worth A$420. Some people will receive more money than that in a project that is estimated to cost over $4.1 billion. Pensioners will also be paid about $250 in a one-off payment.
The implication of these measures on inflation will be mixed. While the fuel tax relief will help to lower the cost of living, stimulus checks could push prices of other items higher. This explains why the US is seeing a higher inflation than other countries.
Therefore, the AUD/USD is in a tight range as investors look forward to the upcoming monetary policy meeting by the Reserve Bank of Australia (RBA). While the bank is expected to leave interest rates unchanged, there is a likelihood that it will tweak its language to signal an earlier hike. In its last meeting, the bank reiterated that it will maintain an expansionary policy until it sees signs of higher inflation.
The AUD/USD pair will also react to the upcoming US non-farm payrolls (NFP) data. Analysts expect these numbers to show that the country’s workforce continued to grow in March this year. The unemployment rate is expected to drop slightly.
AUD/USD forecast
The AUD/USD pair has been in a strong bullish trend in the past few days. A closer look at the four-hour chart shows that this bullish momentum is slowing. The pair is slightly above the 25-day moving average and it seems like it has formed a small double-top pattern. It has also moved above the 25-day moving average while the MACD is forming a bearish divergence pattern.
Therefore, the pair will likely retreat in the coming days ahead of the upcoming RBA meeting. The next key support to watch will be at 0.7400.
