Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6900.
Set a stop-loss at 0.7050.
Timeline: 1-2 days.
Bullish view
Buy the AUD/USD pair and set a take-profit at 0.7050.
Add a stop-loss at 0.6900.
The AUD/USD pair has rebounded in the past few days, even as the US dollar has continued its recent surge. It rose to 0.6970, a few points above last week’s low of 0.6903. This price action will be in the spotlight this week as the Federal Reserve publishes minutes of the last meeting.
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Australian Dollar Jumps Despite Challenges
The AUD/USD pair has rebounded in the past few days despite the rising challenges, including the strong US dollar. The US dollar index (DXY) jumped to 102.53, its highest level since April last year, continuing a rally that started in August when it bottomed at 98.57.
It has also rebounded even as the price of iron ore has continued its downward trend. Data shows that iron ore, Australia’s biggest export, has dropped by nearly 9% in the last month, driven by weak Chinese demand.
The Aussie has rebounded after the recent actions by the Reserve Bank of Australia (RBA) and macro data. In a statement last week, the bank decided to hike interest rates by 0.25%, its fourth increase of the year.
A separate report showed that Australia’s inflation continued rising last month. The headline Consumer Price Index (CPI) jumped to 4.0% in August from 3.5% in the previous month. It has moved further away from the RBA’s target of 2%. As such, market participants believe that the bank will hike interest rates again this year.
In contrast, odds that the Fed will hike interest rates have dropped after last week’s macro data. A report showed that the economy created just 29,000 jobs last month, while the unemployment rate rose to 4.2%. Another report showed that the headline and core PCE figures eased in August.
AUD/USD Technical Analysis
The four-hour chart shows that the AUD/USD pair has been in a downward trend in the past few weeks after peaking at 0.7238 in September. It has attempted to bounce back recently, moving from a low of 0.6903 last week to the current 0.6970.
It has remained below the 50-period moving average and the Supertrend indicator, a sign that bears remain in control. The pair has also moved below the Value Area Low of 0.7027. Therefore, the most likely scenario is where it resumes the downward trend, potentially to this month’s low of 0.6900.
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