Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7250.
Add a stop-loss at 0.7050.
Timeline: 1-2 days.
Bearish view
Sell the AUD/USD pair and set a take-profit at 0.7050.
Add a stop-loss at 0.7250.
The AUD/USD exchange rate retreated after the Australian Bureau of Statistics (ABS) published a weaker-than-expected consumer inflation. It retreated to 0.7135, down from the year-to-date high of 0.7278. It also retreated amid the rising jitters about the US-Iran deal to end the war.
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US PCE Inflation Data Ahead
The AUD/USD pair remained on edge after the ABS released the latest consumer inflation data. This report revealed that the trimmed and weighted mean inflation rose 3.3% and 3.5% in April this year. The headline CPI softened to 4.2% from the previous 4.6%.
Australia’s inflation remains above the RBA’s target of between 2% and 3%. However, since the growth was lower than expected, chances are that the Reserve Bank of Australia will maintain interest rates unchanged in the June 16 meeting.
The bank’s caution will be because of the recent jobs report, which showed that the economy lost jobs in April, while the unemployment rate rose. This explains why Australia’s bond yields pulled back, with the ten-year moving to 4.89%. The two-year yield also fell to 4.57%.
The next key catalyst for the AUD/USD pair will be the upcoming US inflation report. Economists expect the upcoming report to show that the headline Personal Consumption Expenditure (PCE) rose 3.8% in April from the previous 3.5%. Core CPE, which excludes the volatile food and energy prices, will come in at 3.3%.
The PCE report is important because it is the Federal Reserve’s favorite inflation gauge because it includes price changes in urban and rural areas. A higher-than-expected inflation report will lead to a more hawkish Fed.
The pair will also react to any new developments on the ongoing US and Iran talks. Signs of a deal will be bullish for the pair as it will lead to more demand for the Australian dollar.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has pulled back in the past few weeks, falling from a high of 0.7278 in May to 0.7135 today. Still, despite this retreat, the pair has found support at the 50-day Exponential Moving Average (EMA).
Most importantly, it has formed an inverted head-and-shoulders pattern, a common bullish reversal sign. It is now forming the right shoulder of this pattern.
Therefore, the pair will likely bounce back in the near term, and potentially hit the resistance at 0.7250. A drop below the support at 0.7075 will invalidate the bullish outlook.
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