Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6800.
Add a stop-loss at 0.6950.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.6950.
Add a stop-loss at 0.6800.
The AUD/USD exchange rate remained under pressure on Wednesday as investors reacted to the latest US inflation data, which raised the possibility of the Federal Reserve hiking interest rates in the next meeting. It dropped to 0.6876, down by 5% from its highest point in September this year.
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Federal Reserve Interest Rate Hike Odds Jump
The AUD/USD pair dropped after a report showed that the US inflation remained steady in October as gasoline and diesel prices jumped. While the two have dropped recently, they remain much higher than where they were last year. Diesel is highly sensitive to inflation since it is used to transport most things that Americans buy.
The headline Consumer Price Index (CPI) rose 0.4% in October, higher than the expected 0.3%. Core inflation, which excludes the volatile food and energy prices, rose 0.3%, also higher than the expected increase of 0.2%. The BLS did not publish the annual change in inflation because of the US government shutdown that happened last year.
These numbers mean that the Federal Reserve will have no option than hike rates in the next meeting. The CME FedWatch tool shows that the possibility of the Fed hiking rates by 0.25% jumped to 85%. Notably, some Federal Reserve officials are making the case for speedier rate hikes, with Christopher Waller supporting a 0.50% increase.
The same thing is happening in Australia, where officials have continued hinting that they will need to hike interest rates again this year. That’s because Australia’s inflation rate has remained much higher than expected. As a result, the bank, which Michelle Bullock leads, may decide to hike rates again, in what will be the fifth increase of the year.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has been in a downward trend in the past few months as the US dollar strength continued. It dropped to 0.6875, down sharply from the year-to-date high of 0.7237.
The pair has slipped below the important support level of 0.6892, its lowest level on October 15 this year. It already remains below the 50-day moving average, while the Relative Strength Index (RSI) has slipped below the neutral level of 50.
The pair will likely continue in the coming weeks as traders target the key support level of 0.6800. This view will be confirmed if it drops below this week’s low of 0.6850.
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