Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6580.
- Add a stop-loss at 0.6750.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6720 and a take-profit at 0.6525.
- Add a stop-loss at 0.6615.
The AUD/USD exchange rate bounced back reluctantly as financial traders placed bets that the Federal Reserve will reassess its stand on rate hikes going forward. The pair rose to a high of 0.6715, which was much higher than last week’s low of 0.6566.
Fed could slow its rate hikes
Last week, Fed Chair, Jerome Powell, made headlines when he testified in Congress. In his closely-watched remarks, he said that the Fed would continue hiking interest rates. These views were interpreted to mean that the bank would consider hiking rates by 0.50% after it boosted rates by 0.25% in February.
The Fed’s hawkish tone was given a boost by the relatively strong American non-farm payrolls (NFP). The numbers showed that the economy added more than 300k jobs in February while the unemployment rate rose slightly to 3.6%.
However, analysts now believe that the Fed will either hike by 0.25% or not hike at all after cracks emerged in the banking sector. American authorities were forced to intervene in a bid to prevent more bank failures. They did that by ensuring that all Signature and Silicon Valley Bank received their funds.
This view is supported by the actions in the bond market, which saw a major decline in yields. The two-year Treasury yields dropped to 4% from last week’s high of 5%. Similarly, the ten-year fell to 3.5%, signaling that traders expect lower rate hikes going forward.
The key data to watch on Tuesday will be the upcoming American inflation numbers. Economists expect that the country’s inflation remained above 6% in February. Recent data shows that gasoline and used car prices have remained at an elevated level recently. A higher inflation rate will mean that the Fed has more work to do.
AUD/USD forecast
The AUD/USD price made a strong recovery as the US dollar pulled back. It made a false breakout by moving slightly above the upper side of the descending channel shown in black. It moved slightly above the key resistance level at 0.6687, the lowest point on February 27. The pair also crossed the 25-period and 50-period exponential moving averages (EMA).
Therefore, the pair will likely resume the downward trend as sellers target the lower side of the channel at ~0.6567.
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