The pair will likely continue falling to complete the right shoulder of the inverted head and shoulders pattern at 0.6850.
- Sell the AUD/USD pair and set a take-profit at 0.6850.
- Add a stop-loss at 0.7000.
- Timeline: 1-2 days.
- Set a buy-stop at 0.6980 and a take-profit at 0.7025.
- Add a stop-loss at 0.6900.
The AUD/USD price retreated sharply after this month’s interest rate decision by the Australian central bank. The pair dropped to a low of 0.6910, which was the lowest level since July 25th of this year. It remains about 3.70% above the lowest point in July.
RBA Warns on Growth
The AUD/USD price dropped sharply even after the Reserve Bank of Australia (RBA) delivered its fourth interest rate hike of the year. As was widely expected, the bank decided to increase interest rates by 0.50% in its bid to fight the red hot inflation. By delivering a series of rate hikes, the bank has become the most hawkish it has been in more than three decades.
The Australian dollar retreated for two main reasons. First, it fell because of profit-taking since the rate hike was already priced in. This is known as buying the rumor and selling the news.
Second, the RBA warned that the economic growth will not be as strong as it hinted in the previous meeting. The bank now expects to grow by about 3.5% in 2022, down from the previous 4.2%. Therefore, while inflation is a major issue for the economy, analysts believe that the bank will slow its rate hikes.
The RBA decision happened at a time when data from Australia shows that the economic growth is moderating. For example, low consumer confidence has hit retail spending. At the same time, the rising mortgage rates have led to a dramatic slowdown in the property market in key places like Sydney and Melbourne.
The RBA expects that inflation will keep rising and then start a downward trend. It rose to 5.1% in the first quarter and the bank sees it peaking to 7.75% later this year.
The AUD/USD pair was in a strong bullish trend towards the RBA interest rate decision. It formed an ascending channel shown in green and reached a high of 0.7046. The pair then dropped sharply after the fact and reached a low of 0.6912.
As it dropped, it moved below the 25-day and 50-day moving averages and the standard pivot point. It also did a break and retest pattern. Therefore, the pair will likely continue falling to complete the right shoulder of the inverted head and shoulders pattern at 0.6850. It will then resume the bullish trend.