Bearish view
Sell the AUD/USD pair and set a take-profit at 0.7100.
Add a stop-loss at 0.7325.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7325.
Add a stop-loss at 0.7100.
The AUD/USD exchange rate held steady at its highest level since May 14 this year after China announced a new stimulus and as traders waited for the upcoming US inflation report. It jumped to 0.7217, up by over 5% from its lowest point in June.
China Stimulus and US Inflation Data
The AUD/USD pair rose as traders reacted to the latest announcement that China was preparing a $54 billion stimulus package to prop the banking and insurance sectors. These are important developments that may positively impact Australia, a top trading partner.
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There will be no major macro numbers from Australia this week. As such, focus among investors will be on the US dollar side, where there will be some notable macro events. The Producer Price Index (PPI) data will come out on Thursday, while the Consumer Price Index (CPI) will be released on Friday.
US inflation is expected to remain above the 2% level for a while. For one, the US-Iran war is escalating, with the two sides hitting oil tankers. As a result, Brent and the West Texas Intermediate (WTI) have jumped to $97.3 and $92.67, respectively. The average gasoline and diesel prices have soared in the past few months.
These numbers come a few days after the US released the latest nonfarm payroll (NFP) data. That report showed that the economy added 162k jobs last month as the unemployment rate remained unchanged at 4.1%.
The data will come a few days before the Federal Reserve delivers its interest rate decision. Analysts are torn on what to expect from the Fed, with some analysts expecting it to hike rates in this meeting. The upcoming inflation report will provide more clarity on what to expect.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has been in a steady uptrend in the past few weeks and is now approaching its highest point this year. It has remained steady above the 50-day moving average.
The Relative Strength Index (RSI) and the Percentage Oscillator Index (PPO) have continued rising, a sign that the momentum is continuing. The risk, however, is that the pair has formed a rising wedge pattern, which is made up of two ascending and converging trendlines.
Therefore, the pair may have a bearish breakout in the near term. If this happens, the next key target to watch will be the psychological level of 0.7000.
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