Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7140.
Add a stop-loss at 0.6945.
Timeline: 1-2 days.
Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6945.
Add a stop-loss at 0.7140.
The AUD/USD pair continued its recent downtrend even as Australia published strong macro data, raising the possibility of a more hawkish RBA. It was trading at the important support level at 0.7000, down from the year-to-date high of 0.7142.
Australia Reports Strong GDP Data
The AUD/USD exchange rate pulled back after some key Australian macro data. A report by the Australian Bureau of Statistics (ABS) showed that the economy expanded by 2.6% in the fourth quarter after growing by 2.1% in Q3. This growth was much better than the expected 2.2%.
The report showed that the economy expanded by 0.8% on QoQ basis, higher than the 0.6% that analysts were expecting. This growth was driven by consumer spending and capital expenditure, which grew by 0.50% and 0.7%.
More data showed that Australia’s private sector continued its growth trajectory. The services PMI was 52.80, while the composite figure rose to 52.40. A PMI figure of 50 and above is a sign of growth.
These numbers came a day after Michelle Bullock, the head of the Reserve Bank of Australia (RBA) said that she was observing the ongoing war in the Middle East and its impact on the economy. This war may make the inflation situation worse in the country and force the central bank to hike interest rates again.
The AUD/USD pair will continue reacting to new developments in the Middle East, where the three countries are fighting. It will also be affected by the upcoming US macro data, including the services PMI and the February jobs report.
These numbers come as analysts predict that the Federal Reserve will maintain a hawkish tone this year.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair retreated to 0.6945 on Tuesday and then bounced back to the psychological level at 0.700. It remains slightly below the lower side of the horizontal channel.
The pair has remained above the 50-day moving average. It has also formed a bullish flag pattern, a common continuation pattern comprising of a long lower shadow and a small body.
Therefore, the pair will likely have a strong bullish breakout in the near term. If this happens, the next key target to watch will be at 0.7143. A drop below this week’s low of 0.6946 will invalidate the bullish outlook.