Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6615.
- Add a stop-loss at 0.6573.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6620 and a take-profit at 0.6550.
- Add a stop-loss at 0.6750.
The AUD/USD exchange rate retreated as concerns about the Australian and Chinese economies continued. After soaring to a multi-week high of 0.6715 after the hawkish Reserve Bank of Australia (RBA) decision, the pair retreated to a low of 0.6650.
Australian and China economies
The Australian economy is going through a stagflation period as low growth coincides with high inflation. The most recent data showed that the country’s consumer inflation has been stuck above 7% as food costs remained high.
At the same time, the latest GDP data came short of expectations. According to the statistics agency, the country’s economy expanded by just 0.2% in the first quarter, a decline from Q4’s expansion of 0.6%. It expanded by 2.3% on a year-on-year basis. This underperformance was mostly because of weak consumer spending.
The GDP figures came a day after the RBA caught the market off-guard by delivering its 12th rate hike. In a statement, the central bank governor warned that more rate hikes could be needed in the next meeting. However, with the current stagflation, there is a possibility that the RBA will hold rates steady for a while.
The AUD/USD pair also retreated after more signs emerged that the Chinese economy was not doing well. In a report, the statistics agency revealed that China’s trade surplus narrowed from over $90 billion in April to $65.8 billion in May. This happened as the country’s imports and exports retreated during the month.
Chinese economic numbers are crucial for the Australian economy for two main reasons. First, China is Australia’s biggest trade partner. As such, weak imports are a sign that China is not buying enough. Second, a weak Chinese market means that key commodities that Australia exports could come under pressure.
AUD/USD technical analysis
The AUD/USD price suffered a major pullback during the American session. It dropped to 0.6644, sharply lower than this week’s high of 0.6717. The pair is approaching the important 50% Fibonacci Retracement level and the important support at 0.6637, the highest point on June 2nd.
It has moved above the 50-period moving average and is between the middle and the upper lines of the Bollinger Bands indicator. Further, the Awesome Oscillator has moved above the neutral point.
Therefore, it seems like the pair is forming a break-and-retest pattern, which means that it could bounce back in the near term. If this happens, the pair will retest the psychological level at 0.6700. A strong drop below the support at 0.6630 will see it drop to the next support at 0.6573.
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