Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6300.
- Add a stop-loss at 0.6100.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6100.
- Add a stop-loss at 0.6250.
The AUD/USD pair retreated to its lowest level in almost five years as forex market volatility continued. It crashed to a low of 0.6087, down over 12% from its highest point in 2024. Then, it crawled back and stabilized at the psychological level of 0.6200.
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Trade war risks remain
The AUD/USD pair retreated after tensions between the biggest economies accelerated. Donald Trump has announced huge tariffs on China and Canada, which will affect the economic growth if it stays.
On the positive side, Trump likely wants to have concessions from these countries. He has already paused tariffs on Mexican goods for one month and announced a team to negotiate with the biggest trading partner.
A sustained trade war, especially with China, will likely impact the Australian economy because of their close ties. China buys most of Australia’s goods like iron ore and coal.
The AUD/USD pair also retreated after Australia published weak retail sales data. According to the statistics agency, retail sales dropped from 0.8% in November to minus 0.1% in December. Building approvals rose by 0.7% in December, lower than the expected 0.9%.
These numbers came a week after the statistics agency published weak consumer inflation data. According to the statistics agency, the headline, weighted, and trimmed mean inflation figures dropped in the fourth quarter.
Therefore, there is a likelihood that the Reserve Bank of Australia (RBA) will start cutting interest rates in the next meeting.
Some US data released on Monday showed that the economy was doing well. The manufacturing PMI numbers by S&P Global and the ISM showed that the sector moved above 50 in January, a sign that it is now recovering.
AUD/USD technical analysis
The AUD/USD pair has been in a downward trend as the US dollar index rebounded. It moved from 0.6940 in September last year to a low of 0.6100 this month.
The pair has dropped below key support levels, including 0.6135, its lowest level in January. It has formed a double-bottom level there, a popular reversal sign whose neckline is at 0.6330, its highest level on January 24.
The pair has also moved below the 50-day moving average and is at the strong, pivot, reverse point of the Murrey Math Lines. Therefore, because of the double-bottom pattern, it will likely rebound as bulls target the next key resistance at 0.6330, the double-bottom’s neckline.
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