Bearish view
- Sell the AUD/USD and set a take-profit at 0.6700.
- Add a stop-loss at 0.6870.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6850 and a take-profit at 0.6950.
- Add a stop-loss at 0.6750.
The AUD/USD price moved sideways on Monday morning as focus shifted to the upcoming interest rate decision by the Reserve Bank of Australia (RBA). The pair was trading at 0.6815, which was slightly above the lowest level last week.
RBA interest rate decision
The Australian dollar moved in a tight range on Monday as investors reacted to several important economic data from Australia. It also reacted to last Friday’s non-farm payroll numbers from the United States. The data revealed that hiring cooled in August as the unemployment rate rose from 3.5% to 3.7%.
Australia published mixed economic data. According to the Australian Industry Group (AIG) and S&P Global, the country’s services PMI remained in the negative zone in August. The weakness happened as demand for top services and business confidence cooled.
Additional data by the Australian Bureau of Statistics (ABS) revealed that business inventories fell from 3.6% in June to 0.3% in Q2 of this year. Further, company gross operating profits eased slightly in the second quarter.
It is against this backdrop that the Australian central bank started its meeting on Monday morning. Analysts believe that the central bank will continue with its tightening process as its battle against inflation soared. Precisely, they expect that the central bank will hike rates by 50 basis points from 1.85% to 2.35%.
Recent data showed that Australia’s inflation has been in a strong upward trend in the past few months. The headline CPI jumped to a 21-year high of 6.1% and analysts believe that it will peak at 7.75% in December.
The AUD/USD will also react to the latest Q2 GDP numbers that are scheduled for Wednesday. Analysts believe that the economy expanded by 3.8% in the second quarter.
AUD/USD forecast
The four-hour chart shows that the AUD/USD pair dropped to a low of 0.6771 last week and the dollar strength continued. It then bounced back slightly and moved slightly below the neckline of the head and shoulders pattern we have been watching. This return to a breakout level is known as a break and retest pattern and is usually a sign of continuation.
The pair has remained below the 25-day and 50-day moving averages. Therefore, I suspect that the pair will resume the bearish trend as sellers target the next psychological level at 0.6700.
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