Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7150.
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 stop-loss at 0.7150.
The AUD/USD pair pulled back slightly after the Federal Reserve delivered its interest rate decision and as risks to the US-Iran deal rose. It retreated to 0.7042, down slightly from this week’s high of 0.7088.
Hawkish Fed and US-Iran Deal Risks
The AUD/USD pair moved downwards slightly as the Federal Reserve delivered its first interest rate decision under Kevin Warsh. This meeting’s outcome was in line with what analysts were expecting. Officials decided to leave rates unchanged between 3.50% and 3.75%.
There were two main changes to the decision. 9 officials supported hiking interest rates later this year because of the elevated consumer and producer inflation. Indeed, the most recent data showed that inflation has moved further away from the Fed’s target of 2.0%.
The other change is that Warsh decided to create five taskforces to address key issues in the bank, including its balance sheet and its communication. According to the CME FedWatch tool, economists now expect the bank to hike rates in October.
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The decision came two days after the Reserve Bank of Australia (RBA) decided to leave interest rates unchanged for the first time this year. Officials also hinted that it may decide to hike interest rates if inflation remained at an elevated level.
A key tailwind the Fed and the RBA are facing is that there are signs that inflation has peaked. Besides, crude oil prices have retreated sharply in the past few days, with Brent and the WTI moving below $80. They have dropped by over 30% from the year-to-date high.
A key risk is that the deal between the US and Iran may fail. For one, some senior senators have insisted that it will need to be voted on by the Senate. If this happens, there is a chance that it will be voted down, leading to higher oil prices.
AUD/USD Technical Analysis
The AUD/USD pair remained in a narrow range in the past few days. It retreated to 0.7025, a few points below its highest point this week. The pair has moved below the 23.6% Fibonacci Retracement level. Bears have already flipped the 50-day moving average.
The Relative Strength Index (RSI) has continued falling, moving from a high of 65 to the current 35. These technicals points to more downside.
The caveat, however, is that it has formed an inverted head-and-shoulders pattern, a common bullish reversal sign. This pattern points to a bullish breakout, potentially to 0.7110.
On the other hand, a drop below the support at 0.6978 will invalidate the inverted H&S pattern and point to more downside.
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