Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6900.
Add a stop-loss at 0.7100.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7100.
Add a stop-loss at 0.6900.
The AUD/USD exchange rate has remained under pressure in the past few days as US bond yields jump amid rising interest rate odds. It also retreated amid the rising odds of a divergence between the Federal Reserve and the Reserve Bank of Australia (RBA). It was trading at 0.7030, down from the year-to-date high of 0.7273.
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US Dollar Jumps Amid Risk-Off Sentiment
The AUD/USD pair has retreated in the past few days, continuing a downtrend that started in May as the US dollar continued rising amid a risk-off sentiment in the market.
This risk-off sentiment accelerated after the three key jobs numbers last week. These reports by ADP and the Bureau of Labor Statistics (BLS) showed that the labor market remained strong in May. For example, the non-farm payrolls (NFP) rose by 172k during the month.
As a result, US bond yields have jumped, with the two-year rising to 4.2% and the ten-year rising to 4.55%. The rising bond yields are a sign that market participants expect the Fed to hike rates later this year.
A key sign to watch will be the upcoming US consumer inflation data, which will come out later today. Economists polled by Reuters expect the upcoming report to show that inflation continued rising in May, with the headline CPI moving to 4.2%. Core inflation, which excludes the volatile food and energy prices, is expected to move downwards slightly to 2.8%.
As a result, a combination of strong US jobs numbers and higher inflation means that the Federal Reserve will likely hike interest rates. On the other hand, analysts believe that the Reserve Bank of Australia (RBA) will pause its interest rate hikes. It has already delivered three rate hikes this year to combat the elevated inflation.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD exchange rate has pulled back in the past few days. It has dropped from a high of 0.7272 in May to 0.7030, which coincides with the bottom of the trading range of the Murrey Math Lines tool.
The pair has retreated below the 50-day Exponential Moving Average (EMA). It also fell below the crucial support level at 0.7080, its lowest point on May 19.
The Aussie is also slowly forming a bearish flag pattern, a common bearish continuation sign. Therefore, the path of the least resistance is downwards, with the next key target being the 0.6835, its lowest point on March 31st and the ultimate support of the Murrey Math Lines tool.
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