Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6900.
Add a stop-loss at 0.7050.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7050.
Add a stop-loss at 0.6900.
The AUD/USD exchange rate lost momentum on Wednesday as the market waited for the upcoming Federal Reserve minutes. It was trading at 0.6980, a few points below this week’s high of 0.6990.
Potential Fed and RBA Divergence
The AUD/USD pair has bounced back in the past few days as investors reacted to the potential divergence between the Federal Reserve and the Reserve Bank of Australia (RBA).
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The RBA hiked interest rates last week, moving the benchmark rate to 4.60%, citing elevated consumer inflation. A report released two days after that showed that the headline Consumer Price Index (CPI) jumped 4.0% in August, moving further away from the bank’s target.
Markets expect the RBA to keep raising interest rates this year, which would make it one of the most hawkish central banks in the world.
On the other hand, the Federal Reserve decided to hike interest rates by 25 basis points in the last meeting. However, the odds of the bank hiking interest rates in the coming meeting have dropped after the recent macro data. The numbers showed that the unemployment rate rose to 4.2% as the economy created just 29,000 jobs.
The AUD/USD pair will react to the performance of the bond market, where yields have continued rising in the US and Australia. In the US, the ten-year yield has jumped to 5.3%, the highest level in over two decades. In Australia, the same yield has moved to 5.37%, a few points below the year-to-date high of 5.45%.
AUD/USD Technical Analysis
The four-hour chart has remained in an uptrend in the past few days. It has risen from a low of 0.6900 last week to the current 0.6980, which is between the middle and upper side of the Bollinger Bands. It has also jumped above the 50-period Exponential Moving Average (EMA).
However, there are signs that the upward trend is losing momentum, with the Average Directional Index (ADX) has plunged to 21.50, its lowest level since September 11. It has dropped sharply from this month’s high of 50.
Therefore, the pair will likely drop to this month’s low of 0.6900. On the flip side, a move above the resistance level of 0.7020 will invalidate the bearish outlook.
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