Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7250.
Add a stop-loss at 0.7100.
Timeline: 1-2 days.
Bearish view
Sell the AUD/USD pair and set a take-profit at 0.7100.
Add a stop-loss at 0.7250.
The AUD/USD pair has pulled back from its multi-year high as the US dollar regained momentum. It was trading at 0.7165, down from this month’s high of 0.7278.
RBA and Federal Reserve Minutes
The AUD/USD pair wavered after the Reserve Bank of Australia published minutes of the last meeting, in which officials decided to deliver the third interest rate hike of the year.
In it, the bank hiked rates to 4.35% as it lamented about the elevated inflation rate, which has jumped to 4.6% in March this year. It has continually moved further away from its target of between 3% and 4%.
The minutes showed that officials remain concerned about inflation, which they expect will continue rising in the coming months as risks of the US-Iran war resuming rose. Donald Trump has pushed Iran to reach a deal, warning that time was running out and the clock was ticking.
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On the positive side, Australia’s economy is doing relatively well and is currently experiencing full employment. Data shows that the unemployment rate has dropped to the lowest level in years. The hawkish tone explains why the Australian government bond yields have soared recently.
The AUD/USD pair will next react to the upcoming Federal Reserve minutes, which will come out on Wednesday. These minutes will provide more information on what officials deliberated in the last meeting.
Still, these minutes will not have a major impact on the US dollar as economists expect the bank to leave interest rates unchanged for the rest of the year because of the elevated inflation.
Data shows that the headline Consumer Price Index jumped to 3.8% in April, while the core CPI rose to 2.6%. The Producer Price Index jumped to a multi-year high of 6%.
AUD/USD Technical Analysis
The daily chart reveals that the AUD/USD pair has pulled back in the past few days. It has retreated from a high of 0.7278 to the current 0.7167.
On the positive side, the pair has formed an inverted head-and-shoulders pattern, a common bullish reversal sign. It has also formed a morning star candlestick and remained above the 50-day moving average.
Therefore, the pair will likely continue rising as bulls target the next key resistance level at 0.7250. A drop below Monday’s low of 0.7117 will invalidate the bullish outlook and point to more downside.
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