Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7100.
Add a stop-loss at 0.6800.
Timeline: 1-2 days.
Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6800.
Add a stop-loss at 0.7100.
The AUD/USD exchange rate continued its recent retreat as traders watched the ongoing Iran war, and the rising demand for the US dollar continued rising. It dropped to 0.6980, down substantially from the year-to-date high of 0.7187, with focus being the upcoming RBA and Federal Reserve interest rate decisions.
RBA and Federal Reserve Interest Rate Decisions
The AUD/USD exchange rate has been in a strong downward trend in the past few days as traders focused on the upcoming Reserve Bank of Australia (RBA) interest rate decision on Tuesday.
Economists expect the bank will hike interest rates by 0.25% to 4.1%. It will be the second consecutive meeting of rate hikes as the bank contends with the rising inflation in the country. The most recent numbers showed that the headline and core inflation numbers remained above the bank’s target of between 2% and 3%.
The other key catalyst for the AUD/USD pair will be the upcoming Federal Reserve interest rate decision on Wednesday. Economists expect the bank to leave interest rates unchanged between 3.50% and 3.75%, continuing a trend that may continue in the foreseeable future.
The main driver for the pair is the ongoing Iranian war that has pushed inflation higher in the past few weeks. Crude oil has jumped to $100 from below $60 earlier this year. Similarly, natural gas, fertilizer, and other commodities have continued rising this year. This trend will continue as long as the Strait of Hormuz remains closed.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD exchange rate has pulled back in the past few days, moving from a high of 0.7180 on March 11 to the current 0.6980. Still, the Australian dollar has done relatively better than other currencies because it is less exposed to the energy sector.
The pair has moved slightly below the psychological level at 0.700 and the 25-day Exponential Moving Average (EMA). Also, the Relative Strength Index has dropped below the neutral point at 50. The two lines of the Percentage Price Oscillator (PPO) have made a bearish crossover and continued falling.
On the positive side, the pair has formed a bullish flag pattern, which is made up of a vertical line and a horizontal channel. Therefore, the pair may still rebound as the RBA hikes its interest rates as the Fed maintains them steady. A rebound may have it rise to the key resistance level at 0.7100.