Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6587.
- Add a stop-loss at 0.6480.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 0.6520 and a take-profit at 0.6450.
- Add a stop-loss at 0.6625.
The AUD/USD pair dropped and retested an important support level as US bond yields dropped. The Aussie dropped to a low of 0.6522, which was lower than this week’s high of 0.6587.
US Treasury yields retreat
The AUD/USD pair retreated after a statement by Michele Bullock, the head of the Reserve Bank of Australia (RBA). She said that the bank was still focused on fighting inflation, which remains above the RBA target of 2.0%.
The RBA decided to hike interest rates by 0.25% in its November meeting. Minutes published this week confirmed that the bank would consider delivering another hike in the coming meetings if prices remain above the 2.0% target.
Most analysts believe that the RBA will leave rates unchanged in December and then hike in the first quarter of the year. This decision will depend on the quarterly inflation report that will come out in January.
The AUD/USD price also pulled back as the US dollar index (DXY) crawled back. The index rose to $103.80, higher than this week’s low of $103.20. Still, it remains sharply below the year-to-date high of $107.
The dollar rose even as American equities continued rising. The Dow Jones and Nasdaq 100 indices jumped by more than 30 basis points.
At the same time, the price of crude oil crashed hard, with Brent and West Texas Intermediate (WTI) falling to $81 and $76, respectively. Oil prices dropped after the OPEC+ cartel postponed its meeting, a sign that there are disagreements about supply reductions. Oil prices are an important part of the economy because of their impact on inflation.
The AUD/USD pair will be in a consolidation phase on Thursday and Friday since the US market will be closed for the Thanksgiving weekend.
AUD/USD technical analysis
The Australian dollar retreated to the key support at 0.6522 in the overnight session. This was an important level since it was at the 38.2% Fibonacci Retracement level. It was also the highest swing on November 6th and September 23rd. It was also the highest point in August.
Therefore, the pair has formed a break and retest pattern, which is a sign of a bullish continuation. It has also moved above the 25-period and 50-period moving averages. Therefore, the outlook for the pair is bullish, with the initial target being this week’s high at 0.6587.
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