Bullish Case
Buy the AUD/USD as Australian yields rise.
Have a take profit at 0.800 and a stop loss at 0.7900.
Timeline: 1 to 2 days.
Bearish Case
Set a sell stop at 0.7900 and a take-profit at 0.7850.
Add a stop loss at 0.7950.
The AUD/USD price rose to the highest level since April 2018 because of a weak US dollar, higher commodity prices, and higher Australian interest rate expectations. The pair rose to 0.7935, which is 43% above the lowest level last year.
Higher Interest Rates Expectations
In its response to the coronavirus pandemic, the Reserve Bank of Australia (RBA) brought interest rates to zero, started a yield curve control program, and launched a quantitative easing program. Recently, the bank ruled out its intention to push rates below zero.
Now, the bond market is signaling that the bank could hike rates in 2022. This will be earlier than the overall RBA estimate of leaving rates unchanged until 2024. The futures market point to a 0.25% rate increase in the fourth quarter of 2022 and by 0.50% in 2023. Similarly, in the United States, Treasury yields have also rallied in the past few weeks ahead of the next $1.9 trillion stimulus package.
The AUD/USD price is also rising because of the relatively higher commodity prices. Data compiled by Bloomberg shows that the Commodity Index has risen by 0.57% in the past 24 hours. The price of copper has risen by 1% while gold and silver have risen by more than 0.30%. This trend will likely continue as the Chinese economy recovers and as the US implements the record $1.9 trillion stimulus. Also, the Biden administration plans an infrastructure package worth trillions.
The pair will today react to the important US consumer confidence data by the Conference Board. Economists expect it to show that the confidence rose from 89.3 to 90.0. Also, it will react to the testimony by Jerome Powell, the Fed chair. Later on, investors will focus on the latest construction work done and Wage Price Index data from Australia.
AUD/USD Technical Outlook
The AUD/USD price rose to a high of 0.7935. On the three-hour chart, the price is above the 25-day and 15-day exponential moving averages. It is also substantially above the important support of 0.7800. The pair has also formed a small ascending channel that is shown in red. At the current level, the price is at the lower side of this channel. In the near term, the pair may continue rising as bulls attempt to move to 0.800.
