Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6600.
- Add a stop-loss at 0.6730.
- Timeline: 1 day.
Bullish view
- Set a buy-stop at 0.6885 and a take-profit at 0.6750.
- Add a stop-loss at 0.6800.
The Australian dollar retreated sharply after the Reserve Bank of Australia (RBA) pointed to an April pause of its interest rate hikes. It also drifted downwards amid a strong US dollar ahead of the upcoming Federal Reserve decision.
Federal Reserve decision
The AUD/USD pair dropped to a low of 0.6650 after the RBA delivered minutes of this month’s meeting. These minutes showed that the RBA committee pointed to a pause of its aggressive rate hikes in its upcoming meeting in April.
The RBA has delivered six interest rate hikes that have pushed the official cash rate at 3.6%. This pause will be necessary for the bank to assess the impact of these interest rate hikes. It will also give the economy time to adjust to the new normal of high-interest rates.
At the same time, the minutes showed that the bank remained open to resume its tightening phase if the economy shows strength and inflation remains stubbornly high.
The RBA minutes came a day ahead of the most pivotal meeting of the Federal Reserve. The FOMC will deliberate on the state of the economy, which is showing signs of slowing down. On Wednesday, Amazon, one of the top American employers, said that it will lay off 9,000 more employees.
Most importantly, the meeting comes at a time when there is turmoil in the banking sector. A few banks, including Silicon Valley Bank and Signature, have failed in the past two weeks. And a study by several economists showed that about 190 banks could fail if rates continued rising. They cited the number of banks with excessive holdings of longer-dated government bonds.
Therefore, the Fed will likely hike by 0.25% as it did in its last meeting. This rate will have the goal of maintaining financial stability while showing commitment for fighting inflation.
AUD/USD forecast
The AUD/USD pair formed a small double-top pattern at 0.6730 whose neckline is at 0.6564. It pulled back below the double-top level to a low of 0.6656. The pair also retreated below the 25-period moving average and the key support at 0.6670. Further, the MACD and signal lines have formed a bearish crossover while the histograms turned red.
Therefore, the pair will likely continue falling, with the next level to watch being at 0.6600. The stop-loss of this trade will be at 0.6730.
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