Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7100.
Add a stop-loss at 0.700.
Timeline: 1-2 days.
Bearish view
Sell the AUD/USD pair and set a take-profit at 0.7000.
Add a stop-loss at 0.7100.
The AUD/USD pair continued its upward trend after Australia published a strong inflation report and after the Federal Reserve delivered its October interest rate decision. It jumped to a high of 0.7055, its highest level since September 23. Focus today will be on the upcoming US macro data like GDP and PCE.
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Potential RBA and Fed Divergence
The AUD/USD pair jumped amid the rising divergence between the Federal Reserve and the Reserve Bank of Australia. The Fed decided to leave interest rates unchanged between 3.75% and 4% as most analysts were expecting.
At the same time, officials suggested that they remain supportive of more interest rate hikes. This means that they may hike rates again in the December meeting if inflation remains at an elevated level.
The RBA, on the other hand, may decide to deliver the fifth rate hike in the next meeting. A report by the Australian Bureau of Statistics (ABS) showed that the headline Consumer Price Index (CPI) rose 3.9% in the third quarter, meeting expectations. The closely-watched trimmed mean CPI rose 3.7%, higher than the expected 3.6%, while the weighted mean CPI jumped 3.6%.
Most notably, the monthly CPI indicator for September rose 4.3%, much higher than the expected 4.20%. These numbers have moved further away from the bank’s target of between 2% and 3%. Inflation has jumped because of the ongoing energy price surge.
The AUD/USD pair will next react to the upcoming US Personal Consumption Expenditure (PCE) and GDP data. PCE is an important number because it is the Federal Reserve’s favorite inflation gauge. A higher reading than expected will raise the possibility of another hike in the December meeting.
AUD/USD Technical Analysis
The daily chart shows that the AUD/USD pair has been in a strong rally in the past few days after bottoming at 0.6895, where it formed a double-bottom pattern. It has now jumped above the 200-day moving average, a sign that bulls are prevailing.
The pair has also moved above the Supertrend indicator, while the Average Directional Index (ADX) has risen. Therefore, because of the double-bottom pattern, the pair will likely continue raising as bulls target the key resistance at 0.7100. A drop below the support level of 0.7000 will invalidate the bullish outlook.
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