Bullish view
- Set a buy-stop at 0.6425 and a take-profit at 0.6500.
- Add a stop-loss at 0.6375.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6365.
- Add a stop-loss at 0.6455.
The Australian dollar was flat against the greenback on Monday morning as traders refocused on Australia’s inflation report. The AUD/USD exchange rate was trading at 0.6420, higher than last week’s low of 0.6363.
Australia inflation report ahead
The AUD/USD pair has been in a strong downtrend in the past few weeks, helped by the extremely strong US dollar. It crashed from this month’s high of 0.6645 to a low of 0.6363 last week as the US dollar index jumped to over $106.5.
The main catalyst for this price action was the general view that the Federal Reserve would maintain a restrictive policy for longer than expected. That’s because the US is going through a period of reflation.
The most recent numbers showed that US inflation is still high, with the core Consumer Price Index (CPI) rising to 3.8%, almost double the Fed’s target. This period coincides with relatively strong economic numbers, with the IMF expecting that the US will be the best-performing G7 country this year.
There is a likelihood that the Federal Reserve will even hike interest rates if inflation remains stubbornly high. In a statement on Friday, Raphael Bostic, the head of the Atlanta Fed, noted that he would be supportive of a rate hike.
John Williams, the head of the New York Fed, said that he saw no need to rush cutting interest rates because of high inflation. Other officials like Jerome Powell, Tom Barkin, and Mary Daly have also warned that there is no need to cut rates soon.
Looking ahead, there will be two important AUD/USD events this week. First, the Australian Bureau of Statistics (ABS) will publish the first quarter inflation report on Wednesday. Economists expect the figure to show that the headline CPI dropped from 4.1% in Q4’23 to 3.4% in Q1’24.
The US will also publish the latest PCE report on Friday. Economists expect the data to show that the headline PCE rose to 2.6% in March. These are important numbers since the PCE is the Fed’s favorite inflation figure.
AUD/USD technical analysis
The AUD/USD pair crashed to a multi-month low of 0.6363 last week after Israel launched a counterattack at Iran. It then bounced back as traders assessed the impact of the attack to the economy. It has formed a hammer pattern, a popular reversal pattern.
The pair remains slightly below the important resistance at 0.6442, its lowest swing in February. It has also moved below the 50-period Exponential Moving Average (EMA). Therefore, the outlook for the pair is neutral ahead of Australia’s inflation data. The key support and resistance levels to watch will be at 0.6363 and 0.6455, its highest swing on Thursday.
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