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AUD/USD Forex Signal: Getting Oversold as the US Dollar Index Spikes

The AUD/USD pair is also crashing as investors focus on the ongoing debt ceiling issue in the US. Democrats and Republicans have struggled to reach an agreement on how to raise the debt ceiling. 

Bearish view

  • Sell the AUD/USD pair and set a take-profit at 0.6450.
  • Add a stop-loss at 0.6600.
  • Timeline: 1-2 days.

Bullish view

  • Set a buy-stop at 0.6550 and a take-profit at 0.6650.
  • Add a stop-loss at 0.6475.

The AUD/USD pair moved downwards after the latest Fed minutes and after Fitch placed the US in its “rating watch negative.” The pair crashed to a low of 0.6525, the lowest level since November last year while the dollar index jumped to $104.20.

Fed minutes and debt ceiling

The Fed published minutes of the last meeting on Wednesday. In that meeting, officials decided to hike interest rates by 0.25%, pushing them to the highest level in more than a decade. The minutes showed that officials were divided on the next actions.

Some officials said that the need for more rate hikes was becoming less certain amid rising expectations of a mild recession later this year. Other officials warned that there was still room left to deliver more rate hikes since inflation remains at an elevated level.

Recent statements by Fed officials have been mixed as well. In a statement on Wednesday, James Bullard said that he favored more hikes in the next meetings. However, some officials like Raphael Bostic and Neel Kashkari have favored pausing rate increases. They argue that pausing will give them more room to observe the impact of the last hikes.

The AUD/USD pair is also crashing as investors focus on the ongoing debt ceiling issue in the US. Democrats and Republicans have struggled to reach an agreement on how to raise the debt ceiling. As a result, Fitch placed the US in a rating watch negative.

Still, I believe that the impacts of defaulting are so big that the two sides will ultimately reach a deal shortly before the June 1 deadline.

The AUD/USD pair will react mildly to the economic numbers scheduled on Thursday like the US GDP and pending home sales numbers.

AUD/USD forecast

The Australian dollar has been in a strong downward trend this month. On Tuesday, the pair crossed the crucial support level at 0.6605, the lowest point on May 18. It also declined below the 50-period moving average and is at the lower side of the Bollinger Bands.

The AUD/USD pair has moved below the oversold level while the Stochastic RSI indicator is falling. Therefore, the pair has room for more downsides in the coming sessions. This could see it drop to 0.6400. I suspect that it will then bounce back next week if the two sides reach a debt-limit agreement.

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Christopher Lewis
About Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.


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