The pair will likely continue falling this week as bears target the September low at 0.7165.
Sell the AUD/USD and add a take-profit at 0.7165.
Add a stop-loss at 0.7300.
Timeline: 1-2 days.
Set a buy-stop at 0.7250 and a take-profit at 0.7350.
Add a stop-loss at 0.7150.
The AUD/USD tumbled to the lowest level since October this year as concerns of a relatively hawkish Federal Reserve remained. The pair is trading at 0.7230, which was the lowest level since October 6. It has dropped by more than 4% from the highest point this month.
Fed and RBA Divergence
The AUD/USD pair has tumbled mostly because of the relatively strong US dollar. In the past few weeks, the dollar has surged as investors reflect on the strong economic data from the US. As a recap, data published this month showed that the US added more than 543k jobs in October. In the same period, the unemployment rate declined to 4.6% while wages rose by 4.9%.
Meanwhile, additional data showed that the country’s inflation surged to the highest level in more than 30 years. At the same time, retail sales defied odds and surged in October. Therefore, these numbers signal that the Federal Reserve will continue with its tightening policies.
Elsewhere, in Australia, recent data has painted of an economy that is making a comeback after going through a rough patch a few months ago. The country’s labor market has done well while inflation and retail sales have also bounced back. Most importantly, Australian home prices have jumped to the highest level on record.
Unlike the Federal Reserve, the RBA has maintained a relatively dovish stance. In its recent minutes, the bank signalled that it will hike interest rates in 2024. That announcement caught investors by a surprise since most of them expected the bank to hike rates sooner.
This week, the AUD/USD pair will react mostly to economic numbers from the US. The US government will publish the important housing statistics that are expected to show that the sector did well. The US will also publish durable goods orders and GDP data.
The four-hour chart shows that the AUD/USD pair has been in a major bearish trend lately. The pair has even managed to move below the 78.6% Fibonacci retracement level. Additionally, it has moved below the 25-day and 50-day moving averages while the money flow index (MFI) has started forming a bullish divergence pattern.
Therefore, the pair will likely continue falling this week as bears target the September low at 0.7165. On the flip side, a move above the key resistance at 0.7300 will invalidate this view.