Bearish View
Sell the AUD/USD ahead of the RBA decision.
Add a take-profit at 0.6950 and a stop-loss at 0.7050.
Timeline: 1-2 days.
Bullish View
Set a buy-stop at 0.7030 and a take-profit at 0.7100.
Add a stop-loss at 0.6050.
The AUD/USD pair crashed to the lowest level since July 2020 as investors wait for the upcoming interest rate decision by the Reserve Bank of Australia (RBA). The pair also dropped sharply after the latest US jobs data.
RBA Decision
The AUD/USD declined after Australia confirmed the community spread of Omicron, the latest variant of COVID-19. In a statement during the weekend, the country’s health ministry confirmed that 5 people had contracted the new variant in Sydney. There are worries that more people will continue to contract the illness.
Therefore, there is a likelihood that this variant will have an impact on the RBA, which started its meeting today. Before the Omicron variant, most analysts were expecting that the RBA will tweak its statement about when it will start hiking interest rates. In the previous meetings, the bank insisted that it will hike interest rates in 2024.
Therefore, the next key catalyst for the AUD/USD will be the RBA statement on interest rates even as the government comes up with solutions on the virus. It is unclear whether the Australian government will impose new lockdowns to curb the new spread.
The uncertainty of the RBA comes at a time when the Federal Reserve has hinted that it will start embracing a more hawkish policy. In a statement last week, the Fed Chair confirmed that the bank will unwind its $100+ billion quantitative easing policy earlier than expected. Powell also noted that the current variant will likely lead to higher inflation in the country.
He also warned that the variant will affect job creation. Data published on Friday showed that the US economy is seeing slow job growth. The economy added more than 240k jobs in November, lower than the expected 500k+.
AUD/USD Forecast
The four-hour chart shows that the AUD/USD pair has been in a sharp bearish trend in the past few weeks. The sell-off accelerated when the pair dropped below the key support at 0.7170, which was the lowest level in September. The pair has also moved below the 25-day and 50-day moving averages.
Therefore, there is a possibility that the bearish trend will continue ahead of the RBA decision. The drop will likely be saved by a relatively hawkish RBA statement.
