Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6900.
Add a stop-loss at 0.7100.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7100.
Add a stop-loss at 0.6900.
The AUD/USD exchange rate remained unchanged on Tuesday morning as iron ore dropped to the lowest level in eleven months. It was trading at 0.7018, up over 2.2% from its July low.
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Australian Dollar Wavers as Iron Ore Sinks
The AUD/USD pair was relatively stable on Tuesday as investors reacted to ongoing weakness in iron ore. Iron ore dropped to the lowest level in 13 months, with futures hitting $92.85.
The price is happening amid weaker Chinese demand and the narrowing margins at steel mills. Also, the market is concerned about the lack of any major stimulus measures by Chinese authorities.
Falling iron ore prices are important for Australia because of the vast amount Australia ships to other countries. Last year, Australia exported iron ore worth about $138 billion.
The AUD/USD pair is also reacting to the performance in the energy market, with oil prices being much lower than where they were last month. Oil pulled back after the US halted the planned attacks against Iran during the weekend.
Still, the risk is that attacks against Iran could start as the two sides have not signed any ceasefire yet. Also, Iran has confirmed that there are no direct talks with the United States yet. Instead, Iran is talking with Oman on how to manage the Strait of Hormuz.
There will be no major macro data from the US and Australia today. As such, traders are focusing on the upcoming Reserve Bank of Australia (RBA) next week. Economists are mixed on what to expect in this meeting. Some analysts see the bank hiking rates since inflation has remained stubbornly high.
The AUD/USD pair will also react to the upcoming US nonfarm payrolls (NFP) data, which will provide more color on the state of the economy.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has rebounded in the past few weeks, moving from last month’s low of 0.6864 to the current 0.7018. It has formed an ascending channel and moved slightly above the 50-day Exponential Moving Average (EMA).
The risk, however, is that the ongoing channel is happening after the pair dropped sharply, moving from a high of 0.7278 in May to 0.6865. This could be a bearish flag pattern, which often leads to a bearish breakdown.
Therefore, the pair will likely remain in this range today. In the future, however, it may have a strong bearish breakout, potentially to 0.6922.
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