Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6375.
- Add a stop-loss at 0.6530.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6530.
- Add a stop-loss at 0.6375.
The AUD/USD exchange rate plunged to its lowest level since August 27, down by 3% from its highest point in September as risks emerged. It was trading at 0.6472 and is at risk of more downside as the US dollar strengthens.
Australian Dollar Falls as Risks Rise
The AUD/USD pair slumped as the trade war between the United States and China intensified. This crisis started last week when Beijing announced new export controls for rare earths and magnets, which are essential in the manufacturing sector.
China then announced a new investigation into some American companies, including Qualcomm, a major chip manufacturer. It also announced new tariffs on US ships docking in China.
In a response, Donald Trump announced that the US will boost tariffs on goods from China to 130%. He also announced that the US would limit some critical software to the country.
All these measures mean that the trade war between the two most powerful countries globally will escalate ahead of a much-anticipated meeting between Donald Trump and Xi Jinping at the APEC meeting in South Korea later this month.
The AUD/USD exchange rate has also slumped because of the recent US dollar gains despite the ongoing government shutdown. Data shows that the US dollar index (DXY) has jumped to $99.55, from the year-to-date low of $96.85.
The next key catalyst for the pair will come out on Tuesday morning when the Reserve Bank of Australia (RBA) publishes minutes of the lat meeting. These minutes will provide more color on what to expect in the next meeting.
However, the main determinant of the outcome of the next meeting will be the upcoming Australian jobs and inflation data. The third-quarter inflation report will show whether prices continued falling.
AUD/USD Technical Analysis
The daily timeframe chart shows that the AUD/USD exchange rate has pulled back in the past few weeks, moving from a high of 0.6705 to 0.6472, its lowest point since August. It has dropped below the 50-day Exponential Moving Average (EMA) at 0.6560.
The pair also dropped below the important support at 0.6520, its lowest level since September 26. Also, the Relative Strength Index (RSI) and the Stochastic Oscillator have all pointed downwards.
Therefore, the pair will likely continue falling as sellers target the key support at 0.6375, its lowest point since June 23. A move above the resistance level at 0.6525 will invalidate the bearish outlook.
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