Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.7100.
- Add a stop-loss at 0.6900.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6900.
- Add a take-profit at 0.7100.
The AUD/USD exchange rate held steady above the key resistance level at 0.700 as investors priced in a potential Federal Reserve and Reserve Bank of Australia (RBA) divergence. It rose to a high of 0.7030, a few points below the year-to-date high of 0.7095.
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Potential Federal Reserve and Reserve Bank of Australia Divergence
The Australian dollar has done well in the past few months, moving from a low of 0.5920 in April last year to a multi-year high of 0.7095.
This rally happened because of the overall US dollar sell-off that has been going on for a while. It happened as investors priced in a divergence between the Fed and the RBA.
The RBA delivered its interest rate decision last week and decided to hike interest rates by 0.25% to 3.85%. Officials cited the recent macro numbers, including inflation and the labor market.
The most recent jobs numbers showed that the economy was at full capacity, with the unemployment rate falling and the number of jobs added soared. Another report showed that the country’s inflation continued rising in December.
On the other hand, the Federal Reserve has delivered three interest rate cuts, bringing the benchmark rate to between 3.50% and 3.75%.
The next important catalyst for the AUD/USD pair is the upcoming US non-farm payrolls (NFP) data, which will come out on Wednesday. Economists are pricing the figure to come in at 70k, an improvement from the present 50k. The unemployment rate is expected to come in at 4.4%. The US will also release the latest retail sales data on Tues.
AUD/USD Technical Analysis
The daily timeframe chart shows that the AUD/USD exchange rate has held steady in the past few days. It rebounded from a low of 0.6900 on Friday to a high of 0.7015.
The pair has remained above the 50-day Exponential Moving Average (EMA). It also moved above the important support level at 0.6700, its highest level in September last year.
The AUD to USD pair has also formed a bullish engulfing pattern, which is made up of a big bullish candle, that fully covers a red candle.
Therefore, the pair will likely continue rising as bulls target the year-to-date high of 0.7095. A move above that level will point to more gains, potentially to the psychological level at 0.7100.