AUD/USD Forex Signal: More Downside Amid Fed and RBA Divergence

Crispus Nyaga

The next key catalyst for the AUD/USD price will be the upcoming Fed interest rate decision. 

Bearish view

  • Sell the AUD/USD pair and set a take-profit at 0.6500.
  • Add a stop-loss at 0.6750.
  • Timeline: 1-2 days.

Bullish view

  • Set a buy-stop at 0.6725 and a take-profit at 0.6850.
  • Add a stop-loss at 0.6625.

The AUD/USD price continued its downward trend after the relatively dovish RBA minutes and the upcoming Fed interest rate decision. The pair dropped to a low of 0.6680, which was significantly lower than last week’s high of 0.6915.

Fed decision ahead

The AUD/USD pair continued its sell-off after the Reserve Bank of Australia hinted that interest rates were getting close to normal. In its minutes, the bank said that it will continue hiking interest rates in the coming months. At the same time, it hinted that it had no pre-set path given the uncertainties surrounding the outlook for inflation.

As a result, analysts have mixed opinions about what to expect in the coming months. For example, those at Westpac, TD Securities, and NAB guiding for a 0.25% rate hike for the upcoming meeting. They had expected the bank to hike by 0.50%. Some banks believe that the RBA will point to another 0.50% rate hike.

The next key catalyst for the AUD/USD price will be the upcoming Fed interest rate decision. Analysts believe that the bank will continue with its bullish trajectory in a bid to fight the stubbornly high inflation. They expect that the bank will hike by 0.75% for the third straight meeting.

The case for another jumbo rate hike emerged last week when the US published strong inflation data. The numbers revealed that the country’s headline and core CPI rose slightly in August even as the prices of gasoline eased modestly.

Still, there are concerns that the soaring rate hikes are having an impact on the economy. Data published on Tuesday showed that building permits dropped by more than 10% last month. Existing, new, and pending home sales have also been under pressure as mortgage rates soared.

AUD/USD forecast

The four-hour chart shows that the AUD/USD pair has been in a strong bearish trend recently. Along the way, the pair moved below all moving averages. The Awesome Oscillator has moved slightly below the neutral point. At the same time, the pair formed an inverted cup and handle pattern, which is usually a bearish sign.

Therefore, the pair will likely continue falling as sellers target the next key support level at 0.6500. This view will be confirmed if it manages to move below the year-to-date low of 0.6670.

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Crispus Nyaga
Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.

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