Bearish View
- Sell the AUD/USD pair and set a take-profit at 0.7200.
- Set a stop-loss at 0.7350.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 0.7280 and a take-profit at 0.7350.
- Add a stop-loss at 0.7200.
The AUD/USD pair dipped below a key support level as concerns about the global economy continued. The pair is trading at 0.7262, which is the lowest level since March 2. It has fallen by more than 2.4% from the highest point last week.
Australian Dollar Pares Gains
The global economy is facing substantial risks as the Russian invasion of Ukraine continues. There is an increasing risk that many economies will undergo a recession as the costs of most items jump. For example, in the past few weeks, the prices of most commodities have been rising.
Natural gas has risen to a record high while oil prices have moved to the highest point in over 14 years. At the same time, nickel, aluminum, and copper have also been rising. Soft commodities like wheat, cotton, and soybeans have also been in a strong bullish trend.
Therefore, many countries will struggle to deal with the new normal since it comes at a time when they are still fighting the Covid-19 pandemic. It is against this backdrop that the AUD/USD pair has retreated as investors move to the safe haven of the US dollar.
Still, the performance of the AUD has not been as dramatic as that of other currencies like the euro and sterling. This is because the Australian dollar is often seen as a barometer of commodities because of the vast it exports to China and other countries.
There are also concerns about what central banks will do. The Fed has already hinted that it will start hiking next week although the degree of rate hikes is not clear. Some analysts anticipate a 25 basis point hike while others expect a 0.50% hike. It is not yet clear when the RBA will start hiking it interest rates.
AUD/USD Forecast
The AUD/USD pair rose to a multi-week high of 0.7440 last week. Since then, the pair has been in a strong bearish trend even as commodity prices remain at elevated levels. As it dropped, it managed to move below the key support level at 0.7314, which was the highest level in January.
The pair has moved below the 25-day moving average and is along the lower line of the Bollinger Bands. The Relative Strength Index has also moved below the oversold level. Therefore, the pair will likely keep falling since the break and retest pattern failed.
