Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6900.
Add a stop-loss at 0.7150.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7150.
Add a stop-loss at 0.6900.
The AUD/USD pair wavered on Wednesday, a day after the Reserve Bank of Australia (RBA) delivered its interest rate decision. It has climbed to 0.7063 as focus now shifts to the upcoming US Consumer Price Index (CPI) report.
US to Publish the July Inflation Data
The AUD/USD pair was in a tight range after the RBA delivered its interest rate decision. It left interest rates unchanged at 4.35% as officials remained concerned about the economy as the US-Iran war dragged on. Precisely, they pointed to falling house prices, which analysts believe has more room to go.
In her statement, Michelle Bullock, the bank’s central bank, left the door open for more interest rate hikes in the future if inflation remains stubbornly high. As a result, markets boosted the odds that the bank will hike interest rates later this year. A rate hike would be the fourth one since the bank has already delivered three of them.
The next important AUD/USD news to watch will come from the United States, where the Bureau of Labor Statistics (BLS) will publish the latest consumer inflation report. Economists expect the report to show that the annual inflation dropped from 3.5% in June to 3.4% in July. Core inflation is expected to drop 2.6% to 2.5%.
These numbers come a few days after the US released the relatively weak nonfarm payrolls (NFP) report. This report showed that the economy lost over 23k jobs in July, while the June report was revised downwards.
Traders now expect the Fed will either leave interest rates unchanged for the remainder of the year. Another scenario is where the bank decides to hike interest rates since inflation has remained above the 2% in the past five years.
AUD/USD Technical Analysis
Technicals are suggesting that the ongoing AUD/USD rally is losing momentum. The Average Directional Index (ADX) has dropped to 10, its lowest level in more than a year.
At the same time, the pair has formed a head-and-shoulders pattern, a common bearish reversal sign in technical analysis. It has also formed an ascending channel, which is part of the bearish flag pattern.
Therefore, these patterns suggest that the pair may reverse soon. If this happens, the next key target to watch will be the psychological level of 0.6900. A move above the resistance level of 0.7100 will invalidate the bullish outlook.
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