Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6950.
Add a stop-loss at 0.7110.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7110.
Add a stop-loss at 0.6950.
The AUD/USD pair continued falling, reaching its lowest level since April 13 as the US dollar rebounded after the strong inflation report and as geopolitical tensions between the US and Iran continued. It retreated to a low of 0.700, much lower than the year-to-date high of 0.7272.
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Rising Geopolitical Concerns and US Inflation Data
The AUD/USD pair has retreated sharply in the past few weeks as the US dollar jumped. Data released on Wednesday showed that the headline Consumer Price Index jumped to a 2023 high of 4.2% as it moved further away from the Federal Reserve’s target of 2.0%.
The report came a few days after the US published the latest non-farm payrolls (NFP) data. This report showed that the economy created over 172k jobs in May, much higher than the expected 85k. As a result, analysts predict that these numbers will push the Federal Reserve to start hiking interest rates in the near term.
The AUD/USD pair will next react to the upcoming US Producer Price Index (PPI) data on Thursday. Economists expect this report to show that the headline PPI jumped to 6.4%, while the core PPI moved to 5.4%.
Meanwhile, tensions between the US and Iran have continued this week, a move that may lead to higher energy prices in the coming months. The dollar often does well when there are rising geopolitical tensions because it is normally a safe-haven asset.
The other crucial catalyst for the pair will come out on Wednesday next week when the Federal Reserve delivers its interest rate decision. Economists expect the bank to leave interest rates unchanged in this meeting. This will be a crucial meeting as it will be Kevin Warsh’s first decision.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has retreated sharply in the past few weeks. It has slumped from a high of 0.7272 to the current 0.7000, its lowest point since April 13.
The pair has slumped below the crucial support of 0.7080, its lowest swing in May this year. It has also slumped below the 50-day Exponential Moving Average (EMA).
The pair moved below the 23.6% Fibonacci Retracement level. Also, the Relative Strength Index (RSI) has pointed downwards. Therefore, the pair will likely continue falling, potentially to the 38.2% retracement level at 0.6950.
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