Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6900.
Add a stop-loss at 0.7120.
Timeline: 1-3 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7120.
Add a stop-loss at 0.6900.
The AUD/USD exchange rate plunged to its lowest point since April 13, after forming a small bearish flag and rising wedge pattern. It retreated to 0.7045 after the US published the latest non-farm payrolls (NFP) data. It has dropped by 3.32% from its highest point this year.
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Strong US Jobs Numbers Point to Fed, RBA Divergence
The AUD/USD pair retreated as investors started to predict a divergence between the Federal Reserve and the Reserve Bank of Australia (RBA).
The most recent Australian inflation and GDP data reduced the possibility that the RBA will hike interest rates in the next meeting. It has already hiked interest rates three times this year, which is affecting economic growth.
The Federal Reserve, on the other hand, may decide to hike interest rates later this year. Data released last week showed that the labor market continued doing well in May. Job vacancies have continued rising, while the economy has created over 172k jobs. The NFP has come out better than expected for the third consecutive month.
The next important catalyst to watch will be the US consumer inflation data, which will provide more information about the impact of the US-Iran ceasefire on the economy. Economists expect the data to show that the headline CPI rose 4.2% in May, moving further away from the bank’s target of 2.0%.
The bond market is signaling that the Fed will hike interest rates. Data shows thar the two-year bond yield jumped to 4.145%, its highest point since May 27. It has jumped from a low of 3.36%. Also, the ten-year yield jumped to 4.53%.
AUD/USD Technical Analysis
The daily chart reveals that the AUD/USD pair has retreated sharply from a high of 0.7276 to 0.7025, its lowest point since April 13. It has slipped below the 50-day Exponential Moving Average (EMA).
Most notably, the pair has formed a bearish flag pattern, which is made up of a vertical line and an ascending channel. It also formed a rising wedge, a common bearish sign in technical analysis.
The Relative Strength Index has also dropped below 50 and is pointing downwards. Therefore, the pair will likely continue falling in the near term as sellers target the key support level at 0.6832, its lowest point on May 31st.
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