Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6650.
- Add a stop-loss at 0.6450.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6450.
- Add a stop-loss at 0.6650.
The AUD/USD exchange rate was flat on Monday morning. This consolidation may be the calm before the storm as numerous catalysts may impact it later this week. It was trading at 0.6515, where it has been stuck at in the past few days.
Fed Decision and Australia Inflation Report
The AUD/USD pair was in a tight range as traders wait on the upcoming Federal Reserve interest rate decision. Economists polled by Reuters, together with traders on platforms like Kalshi and Polymarket, believe that the bank will cut interest rates by 0.25%.
If this happens, it will be the second consecutive meeting in which the bank has cut interest rates. Odds of a cut jumped after the Bureau of Labor Statistics (BLS) published the September inflation report.
The report showed that the core inflation dropped to 3.0% in September. The headline CPI rose from the previous 2.9% to 3.0%, lower than the median estimate of 3.1%.
US inflation remains above the Fed’s 2.0% target. However, the fact that it was lower than expected is enough reason for the bank to cut interest rates since the labor market remains under pressure.
The AUD/USD will also react to the upcoming quarterly Australian inflation report, which will help the RBA when making its interest rate decision. Economists polled by Reuters expect the data to show that the headline CPI rose from 2.1% in Q2 to 3% in Q3. They expect it to move from 0.7% to 1.1% on a QoQ basis.
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If these estimates are accurate, it means that the RBA may decide to leave interest rates unchanged in the meeting next week.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has pulled back from the year-to-date high of 0.6704 to the current 0.6515. It has moved below the 50-day and 25-day moving averages, which have formed a bearish crossover.
On the positive side, the pair has formed a megaphone pattern, which is made up of two ascending and broadening trendlines. This pattern often leads to more gains over time.
The other positive thing is that the two lines of the MACD indicator have formed a bullish crossover pattern. Also, the Relative Strength Index (RSI) has pointed upwards and is nearing the neutral point.
Therefore, the pair will likely have a bullish breakout this week. If this happens, it will likely rebound and retest the upper side of the wedge. A drop below the lower side of this pattern will invalidate the bullish outlook.
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