Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6300.
- Add a stop-loss at 0.6500.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6300.
The AUD/USD pair continued its freefall on Wednesday as the US dollar rally gained steam. The pair has retreated in the past three straight days, moving to its lowest swing since November 14th. It has crashed from this month’s high of 0.6645.
Aussie crash continues
The Australian dollar’s sell-off gained steam this week even after some encouraging Chinese economic numbers. A report by the country’s statistics agency revealed that the economy continued its recovery in the first quarter, a positive move for Australia.
China’s economy expanded by 5.3% in Q1, higher than the expected 4.8%. It jumped by 1.6% on a quarter-on-quarter basis, signaling that it is doing better than what economists were expecting.
The report also showed that industrial production rose by 6.1%, beating the expected 6.0%. Also, retail sales continued rising while the jobless rate dropped to 5.3% in March.
This performance partially explains why the price of industrial metals like copper, aluminum, and iron ore has jumped sharply in the past few weeks. Iron ore has jumped above $100 while copper has soared above the crucial resistance point at $100.
The AUD/USD crash is primarily because of the strength of the US dollar, which has gained against most developed and emerging market currencies. The closely watched US dollar index soared to $106.20 on Tuesday as the rally intensified.
This price action happened as signs showed that the Fed would likely not deliver rate cuts as previously anticipated. The futures market hints that the first cut will happen in September instead of June as was widely expected.
In a statement on Tuesday, the IMF said that the US will grow at double the rate of the G7 average, helped by robust consumer spending. It sees the economy expanding by 2.7% this year, higher than last year’s 2.5%.
As such, the Fed has no motivation to start cutting interest rates since the economic growth is accelerating and inflation is still high.
AUD/USD Technical Analysis
The Australian dollar’s sell-off gained steam this week as the greenback strengthened. It has retreated below the lower side of the ascending channel, which is shown in black. The pair has also crashed below the 50-day moving average and moved to the lower side of the Bollinger Bands.
Meanwhile, the Relative Strength Index (RSI) is nearing the oversold level. Therefore, the general outlook for the pair is bearish, with the next key point to watch is at 0.6300. However, in the near term, there is a likelihood that it will have a dead cat bounce and retest the lower side of the channel at 0.6500.
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