Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7185.
Add a stop-loss at 0.7000.
Timeline: 1-2 days.
Bearish view
Sell the AUD/USD pair and set a take-profit at 0.700.
Add a stop-loss at 0.7185.
The AUD/USD exchange rate continued its recent uptrend, reaching its highest level since June 5, and 3.30% above its lowest level in July. This rally happened as traders embraced a risk-on sentiment after the US and Iran paused their attacks.
The pair also jumped after the important macro numbers from the United States. A report showed that US producer and consumer inflation dropped slightly in July this year as gasoline prices softened. The headline and core CPI dropped to 3.5% and 2.4%, remaining above the Fed’s target of 2.0%.
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A separate report released on Friday showed that US retail sales dropped in July as customer cut back on spending. These numbers, together with the falling crude oil prices mean that the Federal Reserve may opt to leave interest rates unchanged this year.
Before that, some analysts and Fed officials were calling for the Fed to hike interest rates. A decision by the Fed to leave rates unchanged means that the spread between the US and Australia will remain unchanged.
The AUD/USD pair will likely continue grinding higher this week as long as the US and Iran war does not restart. There will be no major Australian data this week. As such, the pair will react to the upcoming US building permits and housing starts data on Tuesday, followed by the Federal Reserve’s minutes of the last meeting.
These minutes will provide more color on what officials discussed in that meeting and what to expect in the next one. In it, the Fed decided to leave rates unchanged between 3.50% and 3.75%, with three of them voting to hike rates.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has rebounded in the past few weeks, moving from the July low of 0.6868 to the current 0.7085. It has jumped above the 50-day moving average, confirming the bullish outlook.
At the same time, the Relative Strength Index (RSI) has already crossed the neutral level of 50 and is pointing upwards. This jump is a sign that it is gaining momentum.
Therefore, the path of the least resistance is bullish, with the next key target being 0.7185, its highest point on March 11. A drop below the 50-day moving average of 0.7020 will invalidate the bullish outlook.
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