Bullish view
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6800.
- Add a stop-loss at 0.700.
The AUD/USD exchange rate rose to the highest level since August 31 as China continued reopening. It rose to a high of 0.6945, the highest level since August 30th of last year. The pair has jumped by over 12% from its lowest point in 2022 as the US dollar index has plunged.
China reopening continues
The Australian dollar continued its recovery as China continued to reopen its borders. On Sunday, people started traveling between Hong Kong and Mainland China. The country also ended most of the parts of the Covid-zero strategy. Therefore, analysts expect that the Chinese economy will start recovering in 2023.
China is Australia’s biggest trading partner. Therefore, its recovery will likely be a positive catalyst for the Australian recovery. Further, there are rumours that China will resume buying Australia’s coal in a bid to support its economy.
The AUD/USD pair also rose as the US dollar continued weakening. The US dollar index has plunged from last year’s high of $115 to $103. This sell-off started when data from the US showed that the country’s inflation had peaked.
The current sell-off happened after the US published mixed jobs numbers. According to the Labor Department, the economy added 225k jobs in December while the unemployment rate dropped to 3.5%. On the other hand, wage growth decelerated, with average hourly earnings rising by 4.2% in December.
Investors believe that the Federal Reserve will start easing its interest rate hikes in the coming months. This explains why the US dollar index and bond yields have plunged while stocks have surged after the report.
Therefore, the upcoming Jerome Powell speech will be crucial. In his first speech of the year, Powell is expected to reiterate that the Fed will maintain a hawkish tone. Shifting his tone at a time when inflation is at 7% could derail the bank’s inflation battle.
AUD/USD forecast
The AUD/USD pair rose sharply as the US dollar index dropped. It rose to a high of 0.6950, which was sharply higher than this year’s low of 0.6688. The pair moved above the key resistance level at 0.6896, the highest point on December 13. It moved above the 25-day and 50-day moving averages while the Stochastic Oscillator moved to the overbought level.
Therefore, the pair will likely continue rising as buyers target the key resistance point at 0.7000. The stop-loss of this trade wll be at 0.6800.
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